What is Towne v Eisner?

This was a landmark court case in the US in 1918 over the issue of investor taxes. The Supreme Court ruled that a stock dividend based on accumulated profits was not ‘income' within the true intent of the United States Constitution.

Where have you heard about Towne v Eisner?

Businessman Henry R Towne brought the case against Mark Eisner, who was the man responsible for revenue collection. He took action to try to recover money collected by the government, arguing that a stock dividend where the shareholder received no actual cash should not be classed as income.

What you need to know about Towne v Eisner.

In the aftermath of the case, Congress passed a new law that specifically stated that stock dividends were to be counted as income.

However, another tax case was brought before the Supreme Court in 1920. In Eisner v Macomber, the court ruled that dividends of a corporation declared by issuing its own stock were not income within the meaning of the Sixteenth Amendment to the constitution.

It turned out that the success of investors in avoiding tax was somewhat short lived.

Find out more about Towne v Eisner.

Read our definition of Eisner v Macomber for another key financial case.