New-York tribune., 1920-03-09
Supreme Court, 5 to 4,
Declares Provisions of
Revenue Act of 1916
Are Unconstitutional
Millions Refund
For Investors
Majority Opinion Finds
Stockholder Gets Moth.
ing and Subject to Risk

From The Tr!btnes Washington Bureau
WASHINGTON, March 8. - A
staggering blow at the taxation
power of the government was dealt
by the Supreme Court to-day, when
by vote of 5 to it declared un-
constitutional the provisions of the
revenue act of 1916 imposing an
income tax on stock dividends.
Not only does the opinion close
The door to future revenue from this
source, but it will require the Treas
ury Department to refund millions
Of dollars collected illegally since
1916.
The government is already face to
face with a deficit Of 81 s1,OO0,000,000.
The money it has collected through
levies on stock dividends has in
large part been expended, and ex-
perts of the Treasury and in Con-
gress were tonight desperately seek
ing to estimate the additional
amounts which Congress must i'm
mediately provide through new
sources of taxation or by further
borrowing to meet these require
nients.
The opinion is of such a sweeping
character as to leave the way open to
those who have paid taxes on these
stock dividends to file their claims for
q refund, and the opinion, in the be-
lief Of the experts, leaves no means
whereby the department can resist
such claims.
Seen Protection Against Tax
The prediction is made that. avail
ing themselves of todays decision,
corporations in large numbers will
adopt policy of issuing stock divi-
dends in place of cash as a means Of
protecting their shareholders from the
Federal tax collectors. Representative
Hail. of Tennessee, one Of the rank
,ng Democratic members of the House
Ways and Means Committee and
author of the income tax, went so far
as to predict that these issues of
stock dividends will aggregate a bill
ION dollars between now and the time
me hnal returns for 1919 are filed
with the internal revenue collectors.
Such also is the belief expressed by
Justice Brandeis, who delivered the
minority opinion of the court.
II stock dividends representing
profits are held exempt from taxation
under the Sixteenth Amendment" Jus
nee brandeis said, "the owners of the
most successful businesses in America
WIN, as the facts III this case illus
,fa'e, be able to escape taxation on
large part of what is actually their
income"
The case decided to-day was in
Tended as test of the validity of the
lax :, and was brought by Mrs. Myrtle
H. Macomber in the New York Fed
.fal Court to recover taxes paid on
c 1,ivo shares of the Standard Oil of
.ali1ornla, which she had received as
s;Hock dividend. The lower courts de-
t.ueo IN her favor and appeal was
MAen by Mark Eisner, then Collector
~ internal Revenue for New York.
~ ss9-aays decision upholds the verdict
!" The lower court.
Stakeholder Receives "Nothing"
MI ''sheSC court mas naQ TINS case
a.oer ss.' consideration since last October
'er ,sas, considering the whole issue of
ssoeK dlvidends and their value, the
court found that "far from being
issa.,zation of profits of the stock
holder, it tends rather to POSTPONE such
.sa.Sation in that the fund repre-
s.eated by the new stock has been
nsIsierred y. from surplus to capital and
w longer is available for oot,,o1 A.
ulbution." "''
point: ''' S'"4' o"'u upo' 'i''s
I, .h. me essential and controlling fact
no,siss tias the stockholder has received
fA:g for out of the .company's assets
n. nis separate use and benefit; on
inv, 'o:herary, every dollar on his orig
eya. Investment, together with what
s.r. accretions and accumulatons that
nj. resulted from the employment of
boldm.Nohey an'' that of the other stock
st;ll t;ilIe.s =. IN the business of the company
oanr iemains the property of the com
wh;ss. and subject to business risks
ent;r. may result in wiping out the
tas ta"e =. investment. Having regard to
ana uuth OF the matter, to substance
mo- M noe 70 form, he has received moth
eon,s .ua' answers the definition Of in
Amsni,h IN the meaning OF the Sixteenth
Aold;ssu minority dissented vigorously,
mush tnat stock dividends are as
far =. income as cash dividends, in SO
ernm". tne taxing power of the gov
"1 Is concerned.
Problems Facing Congress
prohIesentative Hull summed up the
q ufSms fann now to be faced by Congress
hoiSssess cannot now tax stock
proSsss pS.s with respect to undivided
S'0ass in corporation.
forno Of individuals can now
artlficial entities and screen
49, Continued on page three
bonds--$50. 500, $500. 81 900
aaI.saen be bought and ,aoid In Il a M"