Lynch v. Hornby, 247 U.S. 339 (1918)

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Lynch v. Hornby

No. 422

Argued March 4, 5, 6, 1918
Decided June 3, 1918
247 U.S. 339

CERTIORARI TO THE CIRCUIT COURT OF APPEALS

FOR THE EIGHTH CIRCUIT

Syllabus

The Income Tax Act of October 3, 1913, c. 16, 38 Stat. 166, drew a distinction between a shareholder’s undivided interest in the gains and profits of a corporation prior to declaration of a dividend and his participation in the dividends declared and paid, treating the latter, in ordinary circumstances, as part of his income for the purpose of the "surtax" and not regarding the former as taxable to him unless fraudulently accumulated to evade the tax.

Under the Sixteenth Amendment, Congress may tax without apportionment dividends received in the ordinary course by a shareholder from a corporation, even though extraordinary in amount and derived from a surplus of corporate assets existing before the Amendment.

Under the Income Tax Act of 1913, dividends declared and paid in the ordinary course by a corporation to its shareholders after March 1, 1913, whether from current earnings or from a surplus accumulated before that date, were taxable to the individual shareholder as income under the "surtax" provision. Lynch v. Turrish, ante,221, and Southern Pacific Co. v. Lowe, ante,330, distinguished.

236 F. 661 reversed.

The case is stated in the opinion.