However, in the aftermath of Towne v. Eisner, the US Congress passed a revenue collection statute that specifically stated that stock dividends were to be considered as income.

She received 1,100 additional shares, about $20,000 in par value of which represented earnings accumulated by the company, recapitalized rather than distributed, since the effective date of the original tax law.

Stock dividends, however, merely give the shareholders additional pieces of paper to represent the same equitable interest; they do not transfer assets or create new priorities among the security-holders.

The total value of the common shares, though now spread out over a larger number of units, is left unchanged from its previous level.

"[2] The issue in the case was the following: Essentially, therefore, [i.e. in light of the fact that stock and cash dividends are economically equivalent,] the question in Macomber was not whether the shareholder had gain in an economic sense, but whether in legal or accounting terms the stock dividend was to be regarded as a taxable event....

Stripped of its Constitutional element, the issue in Eisner v. Macomber in the end comes down to a "battle of similarities."

Is a stock dividend (as the majority held) "more like" a situation in which a corporation simply accumulates its earnings and makes no distribution at all?

In others words, Congress did not have the power to redefine "income" as it appeared in the Constitution: The Court ordered that Macomber be refunded the tax she overpaid.

In Bruun, a taxpayer-landlord repossessed a property from a tenant—property that had been subject to a 99-year lease - after the tenant failed to pay rent and taxes.

Here is a typical quote from the case used as support of this position: In order, therefore, that the clauses cited from Article I of the Constitution may have proper force and effect save only as modified by the Amendment, and that the latter also may have proper effect, it is essential to distinguish between what is and what is not income" as the term is there used; and to apply the distinction as cases arise according to truth and substance without regard to form.

Congress by any definition it may adopt cannot conclude the matter, since it cannot by legislation alter the Constitution, from which it derives its power to legislate, and within whose limitations alone that power can be lawfully exercised [emphasis added]The Supreme Court in the case discussed what was income, and quoted from Towne v. Eisner: Just as we deem the legislative intent manifest to tax the stockholder with respect to such accumulations only if and when, and to the extent that, his interest in them comes to fruition as income, that is, in dividends declared, so we can perceive no constitutional obstacle that stands in the way of carrying out this intent when dividends are declared out of a pre-existing surplus.... Congress was at liberty under the amendment to tax as income, without apportionment, everything that became income, in the ordinary sense of the word, after the adoption of the amendment, including dividends received in the ordinary course by a stockholder from a corporation, even though they were extraordinary in amount and might appear upon analysis to be a mere realization in possession of an inchoate and contingent interest that the stockholder had in a surplus of corporate assets previously existing.