Towne v. Eisner,
245 U.S. 418 (1918)

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U.S. Supreme Court

Towne v. Eisner, 245 U.S. 418 (1918)

Towne v. Eisner

No. 563

Argued December 12, 1917

Decided January 7, 1918

245 U.S. 418


In an action to recover back money collected and retained by the government, over plaintiff's protest, as a tax on income under the Income Tax Law of 1913, plaintiff alleged that that upon which the tax was levied, a stock dividend based on accumulated profits, was not "income" within the true intent of the statute, and that, if the statute so intended, it was so far unconstitutional because, in the Sixteenth Amendment, upon which its validity depended, the term "income" could not be construed to embrace such dividends. Held that there was thus presented not merely a question whether the statute had been wrongly understood and applied, but also a question of the scope of the Amendment, which afforded jurisdiction to review both questions by direct writ of error to the district court.

The value of new shares, issued as a stock dividend and representing merely surplus profits transferred to the capital account of the corporation, is not taxable to the share holders as income within the meaning of the Income Tax Law of 1913. So held where the profits were earned before January 1, 1913, and the transfer and dividend were voted December 17, 1913, and the distribution, ratably to shareholders of record on the 26th of that month, took place on January 2, 1914.

242 F. 702 reversed.

Page 245 U. S. 419

The case is stated in the opinion.

Page 245 U. S. 424

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