Stock Dividends as Income

In the case of Towne v. Eisner, the United States Supreme Court has recently held that under the Income Tax Law of 1913, the stock dividends received by a shareholder during the year 1914 could not be taxed upon their full par value, where the corporate surplus thus distributed all accrued prior to January I, 1913. The Treasury Department subsequently announced that the decision is not applicable to the Income Tax Law of 1916.1 It is the purpose of this article to review the case of Towvne v. Eisner,2 and then to discuss the soundness of the position taken by the Secretary of the Treasury. Thus two general questions are presented. The first is, “Can the decision of the Supreme Court in the Towne Case be upheld?” The second is, “Is that section of the Income Tax Law of 1916 that states that stock dividends are income and taxable, constitutional?” These questions will be dealt with in order