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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Chapter

Document type:: Monograph

Structure type:: Chapter

Title:: [Appendix]

Collection:: Economics Books

26 STOCK DIVIDENDS of “incomes” in the sixteenth amendment; it being very clear that Congress intended in that act to exert its power to the extent permitted by the amend- ment. In Towne v. Eisner it was not contended that any construction of the statute could make it narrower than the constitutional grant; rather the contrary. The fact that the dividend was charged against profits earned before the act of 1913 took effect, even before the amendment was adopted, was neither relied upon nor alluded to in our consideration of the merits in that case. Not only so, but had we considered that a stock dividend constituted income in any true sense, it would have been held taxable under the act of 1918, notwithstanding it was based upon profits earned before the amendment. We ruled at the same term, in Lynch ». Hornby (247 U. S. 339), that a cash dividend extraordinary in amount, and in Peabody ». Eisner (247 U. S. 347), that a dividend paid in stock of another company, were taxable as income, although based upon earnings that accrued before adoption of the amendment. In the former cage, con- cerning “corporate profits that accumulated before the act took effect,” we declared (pp. 343-344): “Just as we deem the legislative intent manifest to tax the stockholder with respect to such accumulations only if and when, and to the extent that his interest in them comes to fruition as income; that is, in dividends declared, so we can perceive no constitutional obstacle that stands in the way of carrying out this intent when dividends are declared out of a pre- existing surplus. * * * Congress was at liberty under the amendment to tax as income without apportionment everything that became income, in the ordinary sense of the word, after the adoption of the amendment, including dividends received in the ordinary course by a stockholder from a corporation, even though they were extraordinary in amount and might appear upon analysis to be a mere realization in possession of an inchoate and contingent interest that the stockholder had in a surplus of corporate assets previously existing.” In Peabody ». Eisner (pp. 349-350), we observed that the decision of the district court in Towne v. Eisner had been reversed “only upon the ground that it related to a stock dividend, which in fact took nothing from the property of the cor- poration and added nothing to the interest of the shareholder, but merely changed the evidence which represented that interest”; and we distinguished the Peabody case from the Towne case upon the ground that “the dividend of Baltimore & Ohio shares was not a stock dividend but a distribution in specie of a portion of the assets of the Union Pacific.” Therefore, Towne ». Eisner can not be regarded as turning upon the point that the surplus accrued to the company before the act took effect and before adoption of the amendment. And what we have quoted from the opinion in that case can not be regarded as obiter dictum, it having furnished the entire basis for the conclusion reached. We adhere to the view then expressed, and might rest the present case there; not because that case in terms decided the constitutional question, for it did not; but because the conclusion there reached as to the essential nature of a stock dividend necessarily prevents its being regarded as income in any true sense. Nevertheless, in view of the importance of the matter, and the fact that Con- gress in the revenue act of 1916 declared (39 Stat. 757) that a “stock dividend shall be considered income, to the amount of its cash value,” we will deal at length with the constitutional question, incidentally testing the soundness of our previous conclusion. The sixteenth amendment must be construed in connection with the taxing clauses of the original Constitution and the effect attributed to them before the amendment was adopted. In Pollock ». Farmers’ Loan & Trust Co. (158 U. 8. 601), under the act of August 27, 1894 (c. 349, § 27, 28 Stat. 509, 553), it was held that taxes upon rents and profits of real estate and upon returns from investments of personal property were in effect direct taxes upon the prop- erty from which such income arose, imposed by reason of ownership; and that Congress could not impose such taxes without apportioning them among the States ‘according to population, as required by Article I, § 2, clause 3, and § 9, clause 4, of the original Constitution. Afterwards, and evidently in recognition of the limitation upon the taxing power of Congress thus determined, the sixteenth amendment was adopted, in words lucidly expressing the object to be accomplished: “The Congress shall have power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several States, and without regard to any census or enumeration.” As repeatedly held, this did not extend the taxing power to new subjects, but merely removed the necessity which otherwise might

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