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Law School Case Brief

Eisner v. Macomber - 252 U.S. 189, 40 S. Ct. 189 (1920)


Income may be defined as the gain derived from capital, from labor, or from both combined, provided it be understood to include profit gained through a sale conversion of capital assets. 


Plaintiff stockholder received certificates for additional shares issued by the corporation as stock dividends. Defendant United States treated those shares as income, and plaintiff paid a tax under protest on the same. Plaintiff brought an action against defendant to recover the tax contending that in imposing such a tax, the Revenue Act of September 8, 191 violated Article 1 of the Constitution, which required direct taxes to be apportioned according to population. The district court held in favor of plaintiff and defendant sought the court's review.


Was the contested taxation without apportionment of plaintiff's stock dividend violative of Article 1 of the United States Constitution?




The Court held that by treating the dividends as income, defendant failed to appraise correctly the force of the term "income" as the mere issue of a stock dividend made plaintiff no richer than before. Therefore,  Congress did not have the power to tax without apportionment a stock dividend made lawfully and in good faith, as income of the stockholder, and the Act failed as a contravention of Article 1 of the Constitution.

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