Atlanta tri-weekly journal. [volume] (Atlanta, Ga.) 1920-19??, 1920-03-09
.M|LL|ONSCOL[ECTED
ON INCOMES MUST
NOW BE REFUNDED
Supreme Court, in Memoir
able Ruling on 1916 Act,
Says Stock Dividends Are
Capital Stock

WASHINGTON, March S,--Stock,
dividends may not be taxed as I'M
come, the supreme court held today
in declaring unconstitutional the pro-
visions of the, 1916 income tax act
taxing as income such dividends de-
clared by corporations out of earn.
ings and profits accruing after March
l. 1913.
Under the courts ruling, the fed
eral government must refund mill
lions of dollars in taxes collected
on stock dividends since the 1916
law became effective, Internal rev.
enue bureau officials said today the
exact total of the refunds could not
be estimated at this time, and that
it would not be known until all
claims had been filed and computed.
The opinion read by Justice Pit
ney declared that the 1915 law dis
agreed with the sixteenth amend
ment, providing for federal income
taxes.
The court held stock dividends are
capital stock.
"Stock dividends are nothing more
than book adjustment and repre-
sent the increased value of a corpo-
ration's stock because of increased
earnings" he said.
"Stock dividends show a company's
earnings have, been capitalized In
stead of divided They still remain
property and in the hands OF the
company, and the stakeholder re.
ceives nothing which may be re-
garded as income. ts&
TT. is argued the stock dividends
may be sold, but that is not the
question. The question is what is
a stock dividend and we hold it is
capital. 1t doesn't make any differ
ence whether the stock dividend Is
salable.
'It would require the selling of
other stocks to pay the tax on stock
dividends, if 1t were held taxable
The case has been argued twice
during the last year. 9
The decision Of the court was s
tod. Justices Holmes and Day dis.
senting on one ground and Justices
Clarke and Brandeis on another.
Charles E. Hughes represented the
financial interests fighting the ef-
forts Of the government to collect.
The suit was brought by Myrtle
Macomber against Mark Eisner. in
ternal revenue collector, and lower
courts decided against the collector.
The Standard Oil company OF Cal
1fornia declared a SO per cent stock
dividend and Myrtle Macomber, who
was owner. of 2,200 shares, received
LOO shares more as her dividend.
Eisner levied on this under the
1915 law and the attacks on the law
followed.
Text Of Opinion
The majority opinion said in part:
A stock dividend shows that the
company's accumulated profits have
been capitalized, instead of distri5.
uted to the stockholders or retained
as surplus available for distribution
in money or in kind should oppoI-
tunity offer. Far from being real
ration Of profits Of the stockhola-
er, it tends rather to postpone suca
realization, in that the fund repre-
sented by tho new stock has peen~
transferred from surplus to capifai.
and no longer is available for actual
distribution.
"The essential and controlling fact
is that the stakeholder has received
rothinG out of the company's as
sets for his separate use ano beiie-
fit; on the contrary, every dollar
or his original investment, together
with whatever accretions and accl1e
mutations have resulted from en-
ployment of his money and that OF
the other stockholders in the busi-
ness OF the company, still remains
the property OF the company, and
subject to business risks which may
result in wiping out the entire in
vestment.' e.
Court officials said the case was:
one Of the most important at this :
term and that determination Of this
question affects thousands of in
vestors.