EISNER V. MACOMBER
252 U.S. 189 (1920)
NATURE OF THE CASE: This was a dispute over authority to tax income of a stockholder
without apportionment a stock dividend made lawfully and in good faith against profits
accumulated by a corporation since 1913.
FACTS: Macomber (P) owned 2,200 share of stock in Standard Oil. The par value was $100.
Standard had earned profits substantially in excess of the amounts paid out as dividends on
the common stock. Those retained earnings were labeled as earned surplus. Dividends can only
be paid from earned surplus. In 1916, Standard declared a 50% stock dividend. Thus P got
another 1,100 shares and the earned surplus was capitalized as par value on the new stock
issued. The market value before the dividend was about $360 and after the stock dividend the
price of each share fell to about $250. The price fell by 30% and there was no significant
wealth effect to P. The government sought to impose a tax based on the par value of the new
shares rather than market value. The government wanted to tax 18.07 percent of the $100
times the 1,100 shares or $19,877.
ISSUE:
RULE OF LAW:
HOLDING AND DECISION:
LEGAL ANALYSIS:
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