Eisner v. Macomber

Holding

A pro rata stock dividend representing a mere change in the form of ownership of the same accumulated surplus does not constitute taxable income within the meaning of the Sixteenth Amendment.

Facts

Macomber received a pro rata common stock dividend declared by Standard Oil of California. The IRS sought to tax the dividend as income.

Reasoning

Justice Pitney held that income must be 'derived' from capital or labor, and that a stock dividend leaving the proportional interests of shareholders unchanged was not such a realization. The decision constrained Congress's power under the Sixteenth Amendment by requiring realization.