The sun., 1919-01-24
RULES DIVIDEND In
STOCK ISN'T INCOME
Federal Court Overrides De-
murrcr to Woman's Suit
Against Collector Eisner. .
HUGHES ARGUMENT WINS
Government Will Garry Case
Up-Repayment Of Mill
ions Involved.

Federal Judge Mayer ruled yesterday
that dividends paid in stock are not in
come. He overrnled a demurrer inter-
posed for the Government TO the COM
plant OF Mrs. Myrtle Hardness Ma
comber Of the Hotel ST. Regis. who sued
TO recover 1892 which she alleged was
illegally collected by Mark Eisner, Col
lector Of Internal Revenue for the Third
district. as part Of hor income tax for
1915
The decision will be taken by the Gov
eminent to tho United States Supreme
Court. II Judge Mayors decision Is af-
frmed income taxes collected on stock
dividends in 1916 will have to be repaid
by the Government The total sum in
volved runs into the millions.
Judge Mayer heard argument by
Charles f. Hughes for the plaintiff and
by Vincent II. Rothwell. Assistant United
States Attorney. for the Collector. The
court gave judgment for the plaintiff.
explaining that II did 50 on the authority
of the Supreme Court decisions in Towne
VS.. Elsner and Peabody vs.. Eimer.
which held that stock dividends were not
income.
Constitutionality at stake.
Suit was brought to test the consti-
tuuonality Of an amendment Of 1916 to
the income tax law. which expressly
classified dividends paid in stocks as
income when the distribution Of such
stock was provided for out Of earnings
accruing since March !, 1918, the date
Of the enactment of the original income
tax law. The amendment followed the
Supreme Court decision in Towne W..
Eisner.
Other phases Of the application Of the
income tax law to dividends paid on
corporate securities will be passed upon
by the courts through suits instituted by
]. Pierpont Morgan and others
Mrs. Macomber was the owner of 2,20o
shares of stock of the Standard Oil Com
pany OF California on January Is, 1916,
when the directors voted stock divi-
dend on basis OF one new share for
every two old shares. Prior 10 this divi-
dend the company had shares outstand-
Ing OF par value of s49,6S6.656 of au-
thorized capital stock of 500, 900. 900.
To provide tor the new stock issue $24.-
s4S.S21 was transferred from surplus to
capital account.
Mrs. Macomber received 100 shares
as her dividend. In filing her income
tax return for 1916 she listed IS per cent.
OF the par value OF the shares as income.
Tho percentage was determined by the
proportion Of the company's surplus &C
quired after March /, 1913. On this
item, Mrs. Macomber paid under pro-
test the sum she seeks to recover from
the Collector.
What is income?" Mr.. Hughes argued
was the sole question to be determined.
He declared that the tra nsa rtton rad mt
enriched his client. that. following the
law of values and stock market practice
her $500 shares were worth only as
much as the 1900 shares had been.
prior TO the closing of the books for
the distribution OF the stock dividend
sales OF the stock were made in the mar
ket at prices ranging from $3.50 to $3.50
a share" said Mr.. Hughes "Afterward
the price ranged from $234 to S2ss a
share. showing that the market value of
the plaintiffs holdings was practically
unchanged"