HELVERING, Com'r of Internal Revenue, v. GRIFFITHS.

The question in this case is whether the Acts of Congress and the administrative regulations thereunder afford a basis on which we may reconsider the decision in Eisner v. Macomber, 252 U.S. 189, 40 S.Ct. 189, 64 L.Ed. 521, 9 A.L.R. 1570, and pass on the Government's request that if be overruled.

During the Calendar year 1939 respondent owned 101 shares of common stock of the Standard Oil Company of New Jersey. Twice during the year that corporation made appropriate transfers from earned surplus to its capital accounts, in amounts less than the net accumulation of earnings and profits subsequent to February 28, 1913, and against them issued stock dividends. On June 15, 1939, respondent received a dividend of 1.01 such shares having a fair market value of $42.93. On December 15, 1939, she received a further dividend of 1.53 shares, which had a fair market value of $66.08. These dividends were in common stock identical with the stock on which they were declared, which was the only stock outstanding at the time they were made. The dividend stock was not sold, redeemed, or in any way realized upon, and the taxpayer did not include it as income in her return for 1939. The Commissioner did so include it, and on December 8, 1941, sent her a notice of deficiency in the amount of $9.60. The Board of Tax Appeals reversed his determination, and the Circuit Court of Appeals for the Second Circuit affirmed on the authority of Eisner v. Macomber, supra. 129 F.2d 321. Because of the importance of the question we granted certiorari. 317 U.S. 619, 63 S.Ct. 206, 87 L.Ed. —-.

The tax is asserted under the general provision of § 22(a) of the Internal Revenue Code, 26 U.S.C.A. Int.Rev.Code § 22(a), that income includes 'dividends,' together with the specific provision of § 115(f)(1), 26 U.S.C.A. Int.Rev.Code § 115(f)(1), that: 'A distribution made by a corporation to its shareholders in its stock or in rights to acquire its stock shall not be treated as a dividend to the extent that it does not constitute income to the shareholder within the meaning of the Sixteenth Amendment to the Constitution.'1

Was Congress thereby saying that such a dividend as we have here is not being taxed, in view of the Eisner v. Macomber decision, or was it saying that regardless of that decision it is being taxed? Events which must be considered to determine which Congress intended begin with the enactment of the Revenue Act of 1913, which taxed corporate 'dividends' in general but said nothing of stock dividends in particular.2 The Treasury attempted to tax them, and this Court held that a dividend of common stock paid on stock of the same kind was not income within the meaning of the Act, intimating, however, that as used in the Sixteenth Amendment 'income' might have a wider scope. Towne v. Eisner, 1918, 245 U.S. 418, 38 S.Ct. 158, 62 L.Ed. 372, L.R.A.1918D, 254. Congress had meanwhile provided that a 'stock dividend shall be considered income, to the amount of its cash value.'3 Under that Act the Commissioner asserted that a dividend in common stock paid on common stock constituted income when received. This Court held it was not income within the meaning of the Sixteenth Amendment, chiefly for the reason that income had not been severed from capital or realized by such a distribution. Eisner v. Macomber, 1920, 252 U.S. 189, 40 S.Ct. 189, 64 L.Ed. 521, 9 A.L.R. 1570. This decision was by a divided Court, Justices Holmes and Brandeis each writing a dissenting opinion, in which respectively Justices Day and Clarke joined. It was promptly and sharply criticised.4

Although Eisner v. Macomber dealt only with a dividend of common stock to common stockholders, it was at once accepted as the basis for a broader exemption. The Treasury ruled that receipt of dividend stock generally was not income, and Congress provided in § 201(d) of the Revenue Act of 1921, 42 Stat. 227, that 'A stock dividend shall not be subject to tax * * *.'5 Treasury Regulations under this statute and subsequent re-enactments construed it as convering all dividends paid in stock of the distributing corporation.6

There the matter stood for nearly fifteen years, although in the meantime this Court pointed out in reorganization cases that a distinction existed between the type of stock dividend before it in Eisner v. Macomber and one which gave the stockholder a different stock, or different proportionate interests, than before. United States v. Phellis, 1921, 257 U.S. 156, 42 S.Ct. 63, 66 L.Ed. 180; Rockefeller v. United States, 1921, 257 U.S. 176, 42 S.Ct. 68, 66 L.Ed. 186; Cullinan v. Walker, 1923, 262 U.S. 134, 43 S.Ct. 495, 67 L.Ed. 906; Weiss v. Stearn, 1924, 265 U.S. 242, 44 S.Ct. 490, 68 L.Ed. 1001, 33 A.L.R. 520; Marr v. United States, 1925, 268 U.S. 536, 45 S.Ct. 575, 69 L.Ed. 1079.

Inaction did not mean however that persons who received stock dividends were escaping all support of the revenues. Taxation was only postponed, as it taxation of many securities taken in corporate reorganizations, until sale or other realization has occurred. Their proceeds when realized have always been taxable as income. The Treasury had come to compute the postponed tax under Regulations which as to some classes of stock apportioned the cost basis between the old stock and the dividend stock in accordance with their respective fair market values at the time the stock dividend was issued.7 March 30, 1936, this Court granted certiorari in Koshland v. Helvering, 298 U.S. 441, 56 S.Ct. 767, 80 L.Ed. 1268, 105 A.L.R. 756, in which the taxpayer challenged the validity of the apportionment Regulations. 297 U.S. 702, 56 S.Ct. 669, 80 L.Ed. 990. She had owned certain preferred stock and had received a dividend of common shares thereon. The preferred was thereafter redeemed, and the Commissioner applied the allocation rule, which reduced the cost basis of this old stock. This, of course, increased her gain on the redemption of the old stock and added to her tax. She argued that her dividend, notwithstanding Eisner v. Macomber, to which she gave a narrow reading, was constitutionally taxable as income at the time received. The Court held unanimously and squarely that the dividend in question did constitute income within the Sixteenth Amendment, and in effect limited Eisner v. Macomber to the kind of dividend there dealt with. But it did not overrule that decision or question its authority as to dividends such as we have in this case. With two Justices dissenting it struck down the apportionment regulations as being beyond statutory authorization.

While the Court was considering stock dividends in the Koshland case, Congress was considering them in connection with the pending Revenue Act for 1936.

On March 3, 1936, the President had suggested the enactment of a tax upon the undistributed income of corporations.8 On March 26, 1936, and while the taxpayer's petition for certiorari in the Koshland case was pending, a Subcommittee of the House Ways and Means Committee recommended that such a tax be enacted in lieu of the existing capital-stock, excess-profits, and income taxes on corporations.9 It was thought by some authorities that imposition directly upon shareholders of a tax based on their pro rata shares of corporate earnings would be more satisfactory than the undistributed-profits tax.10 Serious consideration of this method, which had been employed in earlier times,11 was foreclosed by the belief that Eisner v. Macomber made it 'impossible' to put into effect.12

The statements of members of Congress and of responsible Treasury officials at the hearings and debates on the Act are at variance with the present assertion of the Government that Congress intended § 115(f)(1) to challenge or override the decision to which it had in other sections of the Act accommodated itself.

At the hearings of the Congressional Committees the proposed tax was attacked as being a measure which would have the effect of forcing the distribution by corporations of assets needed in their business. Its supporters anticipated the decision of this Court in the Koshland case and countered with statements that dividends taxable as income to the shareholders—which would have the effect of avoiding the undistributed-profits tax on the corporation13 could be declared and the undistributed-profits tax avoided without the necessity of distributing assets.14 No testimony was given, however, that dividends such as we have in this case were legally taxable or intended to be taxed.15

As reported by the House Ways and Means Committee and passed in the House, § 115(f)(1) of the Bill provided: 'A distribution made by a corporation to its shareholders in stock of the corporation or in rights to acquire stock of the corporation shall be treated as a taxable dividend to the extent that such distribution constitutes income to the shareholder within the meaning of the Sixteenth Amendment to the Constitution and represents a distribution of earnings or profits accumulated after February 28, 1913.'16 The Committee Report stated that: 'It is provided in Sec. 115(f) that stock dividends shall be subject to tax to the extent that such dividends constitute income to the shareholder within the meaning of the sixteenth amendment to the Constitution.'17

The manager of the Bill, Congressman Vinson of Kentucky, stated on the floor of the House, with reference to § 115(f)(1): 'In no sense is this an attack upon the Eisner against Macomber decision. There are many dividends received in stock and stock rights that are distinguishable from the character of stock dividends in the Macomber case, supra, and are actual realized taxable income. As we see it, a stock dividend that is not taxable is one in which the relative interest of each shareholder of a corporation is unchanged in his stock ownership.'18 He submitted a legal memorandum furnished by Arthur Kent, Acting Chief Counsel of the Bureau of Internal Revenue, setting forth cases dealing with the taxability of stock dividends, sixteen of which including Eisner v. Macomber, had held stock dividends nontaxable, and twelve of which had held that the dividends were not true stock dividends and thus were taxable. This memorandum was in support of Kent's statement in response to Congressman Vinson's questioning at the hearings before the House Ways and Means Committee, to the effect that 'the constitutional immunity of the true stock dividend recognized or declared in Eisner v. Macomber does not apply to all types and varieties of so-called stock dividends.'19 Congressman Vinson called particular and favorable attention to an article approving the decision in Eisner v. Macomber, published in the same month by Professor Magill, who had served as Special Assistant to the Secretary of the Treasury in tax matters and has also served as Undersecretary of the Treasury.20 Congressman Vinson reiterated his views on the following day in response to questions by Congressman Treadway, leader of the opposition to the Bill.21

The opinion of this Court in the Koshland case was announced on May 18, 1936, six days after the Senate Finance Committee concluded its hearings. This Committee reported out § 115(f)(1) in the form in which it is found in the Act: 'A distribution made by a corporation to its shareholders in its stock or in rights to acquire its stock shall not be treated as a dividend to the extent that it does not constitute income to the shareholder within the meaning of the sixteenth amendment to the Constitution.' It stated in explanation of the change: 'This subsection of the House bill, under which stock dividends are made taxable to the full extent permitted by the Constitution, is retained by your committee, except for changes made necessary by virtue of the reported amendment of section 115(a) and in the interest of greater clarity.'22

Senators Black and La Follette of the Senate Finance Committee submitted a minority report recommending an increase in the undistributed-profits tax rates, and also that § 115(f)(1) specifically adopt the the formula of the recently decided Koshland case, for no apparent reason other than a belief that in its present form it did not clearly have the effect of taxing even the type of stock dividends which the Court held in that case could be taxed.

To this end they recommended that § 115(f)(1) 'Specifically provide that there shall be no undistributed-profits tax on stock dividends which are taxable income for the individual recipient because the stock 'gives the stockholder an interest different from that which his former stockholdings represented."23 In debate on the floor of the Senate, Senator Black said that: 'As all Senators know, until about 2 weeks ago it was generally believed that it was impossible to tax stock dividends as income of the recipient of those stock dividends. About 2 weeks ago, however, the Supreme Court of the United States rendered an opinion which appeared in the Record, in which it decided if those stock dividends were declared in a different type of stock than the stock which was originally held by the owner, that those dividends did constitute actual income—taxable income, if you please—in the hands of the stockholder recipient.

'That being true, we have provided in such manner as to avoid any possible misunderstanding, that stock dividends declared in such manner that they are taxable in the hands of the recipient will be considered as distributed profits against which no undistributed-profits tax is imposed.'24

Senator Bone asked: 'Would it not be possible for corporations to evade the effect of that kind of decision of the Supreme Court by distributing stock of a character that would escape taxation?' Senator Black answered that they could, but that they would then be subject to the undistributed-profits tax.25

In response to a question by Senator Adams whether it would not be possible to tax stockholders in corporations upon undistributed corporate earnings, as partnerships were taxed upon undistributed partnership earnings, Senator Black stated that this was 'impossible,'26 but that 'in order to achieve the same result we have suggested a proposal which imposes no corporate tax on undistributed profits if the corporation declares a stock dividend of such nature as to be taxable under the recent Supreme Court opinion. In that case, the case of Koshland against Helvering, the Court distinguished clearly and unequivocally between a normal stock dividend of the same kind and nature as the stock on which the dividend was declared and a stock dividend of a distinctly different nature from the stock on which the dividend was declared. In order to carry out and obtain the full benefit of that, so that we can permit every corporation, if it desires, to retain 100 cents of every dollar in its treasury, if its stockholders wish, we have provided that there shall not be one dollar of corporate undistributed profit tax imposed upon that corporation if it distributes its dividends in a stock dividend which is taxable in the hands of the stockholders.'27

Senator La Follette said on the floor of Senate that 'under all these measures—under the House bill, under the Senate committee bill, and under this amendment—any corporation desiring to retain 100 percent of its statutory net income free from increased tax may do so by paying out to its stockholders a dividend which is taxable under the sixteenth amendment.'28

Senator Robinson stated his approval of the proffered amendment, but suggested that it be withdrawn and the matter taken up in conference. The amendment was accordingly withdrawn, but was not acted upon by the conference.29

The meaning of § 115(f)(1) was critical in the administration both of the undistributed-profits tax upon corporations and of the income tax upon shareholders. This was not its only importance, however. Like the earlier Revenue Acts, the Revenue Act of 1936 contained provisions intended to cope with the problem of evasion of income taxes by shareholders through failure to distribute corporate income.30 These provisions had been drafted to avoid the limitations set upon Congressional power by Eisner v. Macomber. It was generally believed that they had failed, and would fail, fully to accomplish their purpose, and that fully effective provisions would entail a challenge of the authority of Eisner v. Macomber.31

In this state of affairs the Treasury issued Regulations which plainly construed § 115(f)(1) not as repudiating Eisner v. Macomber by taxing stock dividends but as exempting them and adopting the existing decisions, including Eisner v. Macomber. Article 115-7 of Regulations 94, issued under the Revenue Act of 1938, set forth references to the Court's decisions in many cases, and said: 'A stock dividend does not constitute income if the new shares confer no different rights or interest than did the old—the new certificates plus the old representing the same proportionate interest in the net assets of the corporation as did the old.' Three examples followed, the second relating to a dividend identical with the one before us. The example concluded: 'The stock so distributed does not constitute a taxable stock dividend to the shareholder.' The Treasury also issued a statement of general policy as to stock dividends, to the effect that it would allow a dividends paid credit against the undistributed-profits tax with respect to stock dividends which were clearly taxable to stockholders and refuse such credit with respect to stock dividends which were 'clearly nontaxable to the shareholder'; and where taxability was a debatable question, it would tentatively allow a dividends-paid credit if the corporation claiming the credit should file proper waivers or agreements to protect the interests of the Government pending final determination of the taxability to shareholders of the distribution, either by closing agreement executed by all shareholders or by a final adjudication in court.32

Administration of § 115(f)(1) was undertaken and continued upon the basis of this construction, and no effort was made to obtain a different one. On the contrary the Government in this Court took the position that the meaning of § 115(f)(1) was correctly stated by Congressman Vinson on the floor of the House as quoted infra, p. 7.33

Other agencies of the Government accepted this same view of the meaning of the statute, authorizing the issuance by corporations subject to their supervision of securities other than common stock, at variance with their usual policy and in order to permit the corporations to do what the Treasury assured them was necessary to avoid the payment of undistributed-profits taxes.34

The undistributed-profits tax evoked a voluminous literature, which showed almost universal agreement with the correctness of the Treasury's contemporaneous statement of the meaning of the statute.35

We think if Congress had passed or intended to pass an Act challenging a well known constitutional decision of this Court there would appear at least one clear statement of that purpose either from its proponents or its adversaries. Not one contemporaneous word in or out of Congress discloses the purpose which the Government says we should find that this legislation accomplished.

Against this background it was proposed to incorporate an undistributed-profits tax in the pending Revenue Act for 1938. As proposed and enacted, § 115(f)(1) was the same as in the 1936 Act.36 Like earlier Acts, the Revenue Act of 1938, as proposed and enacted, contained provisions intended to conform with the authority of Eisner v. Macomber,37 and it was attacked as embodying the principle of forcing the distribution of needed corporate assets. The rate of the undistributed-profits tax was, however, very materially lower than in the 1936 Act.38 This would have had the effect of diminishing the amount which would be collected from the corporation as undistributed-profits tax despite the declaration of a nontaxable stock dividend. Despite these factors, again there was not the slightest suggestion of the view that § 115(f)(1) had made or had intended to make all stock dividends taxable; on the contrary there was continued recognition of the authority of Eisner v. Macomber.39 Section 115(f)(1) was reenacted while the Treasury Regulation and rulings on its meaning stood unamended and in their original form.40

The Treasury adhered to its earlier views of the meaning of § 115(f)(1) by repromulgating its former Regulation under the Revenue Act of 1938 and under the Internal Revenue Code,41 and it stood unamended at the time of the receipt of the stock dividends here in question. Congress in 1939 enacted basis provisions incorporating the language of § 115(f)(1).42 It was not until November 15, 1940, and after the receipt of the dividends here involved, that the Treasury amended the Regulation, and then only by striking out all after the first sentence.43 This action followed the decision of this Court in Helvering v. Brunn, 309 U.S. 461, 60 S.Ct. 631, 84 L.Ed. 864, on March 25, 1940, which rejected the concept that taxable gain could arise only when the taxpayer was able to sever increment from his original capital. It preceded by ten days the decision in Helvering v. Horst, 311 U.S. 112, 61 S.Ct. 144, 85 L.Ed. 75, 131 A.L.R. 655, which held that there was no exemption from taxation where economic gain is enjoyed 'by some event other than the taxpayer's personal receipt of money or property.' Id., 311 U.S. at page 116, 61 S.Ct. at page 147, 85 L.Ed. 75, 131 A.L.R. 655. Each of these decisions undermined further the original theoretical bases of the decision in Eisner v. Macomber.

The Government says that the time has come when Eisner v. Macomber must be overruled, and that we should construe § 115(f)(1) as intended to tax the dividends here in question and thus to require reconsideration of that decision. It should be observed that the question of the constitutional validity of Eisner v. Macomber is plainly one of the first magnitude, but this is not to say that it is presented in this case. Under our judicial tradition we do not decide whether a tax may constitutionally be laid until we find that Congress has laid it. Unless the tax asserted by the Commissioner has been authorized by Congress it fails of validity before we even reach the constitutional question. To reach that question we must decide whether Congress intended by § 115(f)(1) to do what Eisner v. Macomber squarely held that it could not. We cannot find that it did.

The Government cannot sustain its position on a literal reading of § 115(f) (1). Unlike the Revenue Act of 1916,44 it does not state that all stock dividends are taxable. Instead, § 115(f)(1) qualifies the generality of § 22(a) by providing that a distribution made in shares of the corporation's stock 'shall not be treated as a dividend to the extent that it does not constitute income to the shareholder within the meaning of the Sixteenth Amendment. * * *' (Italics supplied.) If the statute is to be literally read, use of 'does' instead of some word of futurity indicates that the time of enactment or at the latest the time of receipt of the dividend is the critical one for determining taxability. Under either view these dividends would not be taxable. The parties are agreed that for the purposes of this decision the meaning of the Constitution must be found in the decisions of this Court, and when these dividends were received Eisner v. Macomber fixed the meaning contrary to the Government's position.

The administrative and legislative history of the statute squarely conflict with the Government's position in this case.

The Treasury Regulation issued under § 115(f)(1) immediately after it was first enacted states in terms that the statute was not intended to lay a tax on the facts of this case and of Eisner v. Macomber, and the Treasury advised taxpayers by another ruling that some stock dividends were 'clearly' nontaxable. In White v. Winchester Club, 315 U.S. 32, 41, 62 S.Ct. 425, 430, 86 L.Ed. 619, we said that such 'substantially contemporaneous expressions of opinion are highly relevant and material evidence of the probable general understanding of the times and of the opinions of men who probably were active in the drafting of the statute.'45 The statute was re-enacted in its original form after having been in force for two years, and after a long controversy centering around the meaning of the statute which assumed throughout the correctness of the administrative construction. This Court has denied retroactive effects to amendments to valid Treasury Regulations which have survived reenactment of the statute, even in the absence of any affirmative indication that the subject-matter of the statute and Regulation was called to the attention of Congress.46 The effect of reenactment in the absence of such affirmative indications of agreement has been stated in various and not entirely consistent terms.47 This is a question we do not now need to examine, for there are in this case many indications that Congress was in complete agreement with the Treasury on the question of the taxability of the stock dividends here involved. We would think it unquestionable that in this case the Treasury could not retroactively amend the Regulation to the prejudice of the respondent except for the Government's assertion that it should be disregarded upon the authority of Helvering v. Hallock, 309 U.S. 106, 121, note 8, 60 S.Ct. 444, 452, 84 L.Ed. 604, 125 A.L.R. 1368, and that in any event under § 3791(b) of the Internal Revenue Code, 26 U.S.C.A. Int.Rev.Code § 3791(b), the Secretary or Commissioner must be held to have authority in any case to make a retroactive amendment of a Regulation.

The Hallock case is clearly inapposite. There it was held that Treasury Regulations issued more than 11 years after the enactment of the governing Revenue Act of 1926,48 in submission to the decision of this Court in 1935 of the St. Louis Co. cases (Helvering v. St. Louis Union Trust Co.), 296 U.S. 39, 48, 56 S.Ct. 74, 80 L.Ed. 29, 100 A.L.R. 1239, could not prevent the Court from overruling those cases on facts entirely antedating them. That Regulation did not purport to construe the meaning of the statute, as did this one, but simply to acknowledge a constitutional limit imposed by this Court upon the operation of a previously enacted statute; it was not in effect when the transactions involved were entered upon; and there had been no reenactment of the statute while the Regulation was in force.

Nor do we concur in the Government's argument that the legislative history of § 3791(b) of the Internal Revenue Code requires reconsideration of our decision as to the effect of a corresponding provision of the Revenue Act of 1928 in Helvering v. R. J. Reynolds Tobacco Co., 306 U.S. 110, 116, 59 S.Ct. 423, 426, 83 L.Ed. 536.49 We think that in the circumstances of this case the administrative construction in effect at the time of the receipt of the stock dividends here in issue must be given controlling effect.

We would be reluctant in any event to find that Congress intended to hold the effect of § 115(f)(1) in abeyance until the Treasury should decide that the time was ripe to challenge Eisner v. Macomber and carry its challenge to this Court. Such an intention would be a serious departure from the usual policy of Congress to provide the taxpayers and tax-gatherers with a practical basis for the timely settlement of questions of taxation arising each year. At the times of enactment the problem of delay in obtaining decisions of this Court was a matter of grave concern to those concerned with the administration and furnishing of the revenues.50

The Government's assertion that Congress intended to hold the meaning of § 115(f)(1) in suspense until the termination of years of litigation is in conflict with our recent decision in Parker v. Motor Boat Sales Co., 314 U.S. 244, 62 S.Ct. 221, 86 L.Ed. 184. There we were called upon to construe § 3(a) of the Longshoremen's and Harbor Workers' Act, 44 Stat. 1424, 33 U.S.C.A., § 903(a) which made compensation payable only if 'recovery for the disability or death through workmen's compensation proceedings may not validly be provided by State law.' Its statement in such terms was due to this Court's decision in Southern Pacific Co. v. Jensen, 244 U.S. 205, 37 S.Ct. 524, 61 L.Ed. 1086, L.R.1918C, 451, Ann.Cas.1917E, 900, a much criticized and somewhat impaired, but not overruled, decision which held federal power exclusive and state compensation laws forbidden in an area of 'shadowy limits.' The Court, speaking through Mr. Justice Black, said, 'An interpretation which would enlarge or contract the effect of the proviso in accordance with whether this Court rejected or reaffirmed the constitutional basis of the Jensen and its companion cases cannot be acceptable. The result of such an interpretation would be to subject the scope of protection that Congress wished to provide, to uncertainties that Congress wished to avoid.' Id., 314 U.S. at page 248, 250, 62 S.Ct. at page 225, 86 L.Ed. 184.

The Government urges that we read into the Congressional Act an intent to tax these dividends because of considerations that we do not think are entitled to any weight. It argues that the form of § 115(f)(1) is attributable to 'embarrassment' which would have been incident to a 'frontal attack' on Eisner v. Macomber. There is ample ground to know that the prospect of conflict in opinion with this Court on constitutional questions was not sufficient so to mute the 74th and 75th Congresses.51 This was as it should be. There is no reason to doubt that this Court may fall into error as may other branches of the Government. Nothing in the history or attitude of this Court should give rise to legislative embarrassment if in the performance of its duty a legislative body feels impelled to enact laws which may require the Court to re-examine its previous judgments or doctrine.52 The Court differs, however, from other branches of the Government in its ability to extricate itself from error. It can reconsider a matter only when it is again properly brought before it in a case or controversy; and if the case requires, as a tax case does,53 a statutory basis for a case, the new case must have sufficient statutory support.

And, if we were to assume Congressional 'embarrassment' and take it into consideration, we would also be required to weigh the many other political factors which may have motivated the choice employed in the language of § 115(f)(1). Those in favor of the Bill may have believed that the adoption of existing decisions was the most that was politically possible; those who opposed it may have thought it desirable as matter of tax policy to defer taxation of the stock dividend until realization.54 Needless to say, speculation upon such factors has no place in the construction of Acts of Congress.

We are asked to make a retroactive holding that for some seven years past a multitude of transactions have been taxable although there was no source of law from which the most cautious taxpayer could have learned of the liability. If he consulted the decisions of this Court, he learned that no such tax could be imposed; if he read the Delphic language of the Act in connection with existing decisions, it, too, assured him there was no intent to tax; if he followed the Congressional proceedings and debates, his understanding of nontaxability would be confirmed; if he asked the tax collector himself, he was bound by the Regulations of the Treasury to advise that no such liability existed. It would be a pity if taxpayers could not rely on this concurrent assurance from all three branches of the Government. But we are asked to brush all this aside and simply to decree that these transactions are taxable anyway.

Nor is the effect on taxpayers the only consequence of accepting such a proposal. It would unsettle tax administration and subject the Treasury itself to many demands in ways that we cannot anticipate and provide for. Many have sold dividend stocks and paid the postponed tax at higher rates than if they had been taxed as is now proposed. Many have paid on the sale of the original stock because of allocation of part of the dividend to reduce the cost base thereof. Many corporations have been refused deductions on account of this type of stock dividend in computing their undistributed corporate earnings tax, which would become entitled to them. Overhanging the whole effort to accommodate these past transactions to a new retroactive law would be the statute of limitations barring sometimes the Government and sometimes the taxpayer with capricious effects. To rip out of the past seven years of tax administration a principle of law on which both Government and taxpayers have acted would produce readjustments and litigation so extensive we would contemplate them with anxiety. We have recently held as to another questioned decision of this Court that a long period of accommodations to an older decision sometimes requires us to adhere to an unsatisfactory rule to avoid unfortunate practical results from a change. Davis v. Department of Labor, 317 U.S. 249, 63 S.Ct. 225, 87 L.Ed. —-, decided Dec. 14, 1942. We think this another example of the same principle.

The Government acknowledges the hardship which would be incident to the rule we are now asked to declare, and promises its assistance in obtaining legislative correction. It says that: 'We are informed by the Treasury that it has no intention of harassing taxpayers with respect to liability for past years, and that if Eisner v. Macomber is overruled it intends immediately to recommend to Congress legislation which would relieve taxpayers of any unfair retroactive burden that might result from such overruling. * * *' Of course, if there were an adequate basis in statute and regulation for the tax in question, it is difficult to understand why its collection should be regarded as 'harassing.' This assurance that if we will but find that Congress has intended to lay the tax it will be asked to declare that it does not intend it to be collected is hardly reassuring that the decision contended for would be what Congress intended. Since it is acknowledged that legislation would be required to adjust equities that are beyond judicial power and to prevent our decision's being used to harass taxpayers, we may well inquire why the legislation should not precede the judicial decision. Why should we be asked to impose by interpretation a tax which the Treasury intends to ask Congress to lift?

We are unable to find that Congress intended to tax the dividends in question, and without Congressional authority we are powerless to do so. That being the case, we cannot reach the reconsideration of Eisner v. Macomber on the basis of the present legislation and Regulations.

Affirmed.

Mr. Justice RUTLEDGE did not participate in the consideration or decision of this case.

Mr. Justice DOUGLAS, dissenting.

Eisner v. Macomber dies a slow death. It now has a new reprieve granted under circumstances which compel my dissent.

In 1936 Congress provided that stock dividends were taxable as income when they constituted 'income to the shareholder within the meaning of the Sixteenth Amendment to the Constitution.'1 § 115(f)(1), 26 U.S.C.A. Int.Rev. Code § 115(f)(1). That statutory provision is now rewritten so as to permit stock dividends to be taxable when they constitute 'income to the shareholder within the meaning of the Sixteenth Amendment to the Constitution as construed by Eisner v. Macomber.' That extraordinary result is reached in the face of the plain language of the Act and in face of clear statements of its purpose made in Committee Reports. The report of the House Ways and Means Coommittee (H.Rep.No.2475, 74th Cong., 2d Sess., p. 10) stated that stock dividends were to be taxable when they constituted 'income to the shareholder within the meaning of the sixteenth amendment to the Constitution.' The report of the Senate Finance Committee (S.Rep.No. 2156, 74th Cong., 2d Sess., p. 18) contained the unequivocal statement that 'stock dividends are made taxable to the full extent permitted by the Constitution.' That purpose is now thwarted. Reliance is placed on certain statements made by Mr. Vinson who managed the bill on the floor of the House. Yet the most that can be said is that his statements in explanation of the bill were ambiguous. He stated, to be sure, that the new provision was not to be regarded 'as an attack upon the Eisner against Macomber decision.' 80 Cong.Rec., Pt. 6, p. 6215. But in answer to an inquiry from Mr. Treadway whether the new provision 'describes new stock dividends that can be taxed or what portion of stock dividends under the sixteenth amendment can in the future be taxed,' he made the following statement: 'Well, we take the broad position that stock dividends that are taxable income within the sixteenth amendment are subject to taxation, and if they are not such stock dividends and not any taxable income under the sixteenth amendment, they are not subject to taxes.' Id., p. 6310. I fail to see in that declaration even any intimation that Eisner v. Macomber rather than the Constitution marked the reach of the new legislation. Furthermore, a reading of the whole discussion on the floor of the House indicates to me that his denial that the legislation made an 'attack' on Eisner v. Macomber fell far short of suggesting that the House intended to foreclose this Court from reexamining Eisner v. Macomber. If Congress had that purpose, the Act hardly would have been phrased in terms which embrace the full scope of the Sixteenth Amendment. To me the disavowal of an intent to 'attack' Eisner v. Macomber meant no more than a disclaimer of any purpose to propose unconstitutional legislation. Eisner v. Macomber is a decison of this Court. Under the traditional conceptions of the place of judicial review in our constitutional system this Court and only this Court can change the rule of that case in absence of an amendment to the Constitution. Congress here was merely respecting that traditional view. It wanted to go as far as it could. But it could have no idea how far that would be until this Court spoke. No one could predict whether this Court would overrule, modify, or sustain Eisner v. Macomber when the 1936 legislation came before it. Indeed, when the 1936 bill passed the House,2 Koshland v. Helvering, 298 U.S. 441, 56 S.Ct. 767, 80 L.Ed. 1268, 105 A.L.R. 756, which narrowed the application of Eisner v. Macomber, had not been decided by this Court. And Helvering v. Gowran, 302 U.S. 238, 58 S.Ct. 154, 82 L.Ed. 224, which somewhat extended the rule of the Koshland case was not decided until after the 1936 Act was passed. But numerous decisions by lower courts had made inroads on the Eisner v. Macomber doctrine. The rule of that case was in flux; a process of erosion had set in; and none knew where that erosion would cease. Accordingly, Congress drafted § 115(f) of the 1936 Act in the most flexible of terms. It used sweeping language incorporating the full coverage of the Sixteenth Amendment so that those stock dividends would be taxed which this Court would permit to be taxed. There are probably other ways in which the same idea could have been phrased. But the one chosen is clear enough.

The only Treasury Regulations applicable to the taxable year in question—1939—are Regulations 103. These were originally promulgated on January 29, 1940. Sec. 19.115-7 provided: 'A distribution made by a corporation to its shareholders in its stock or in rights to acquire its stock shall be treated as a dividend to the full extent that it constitutes income to the shareholders within the meaning of the sixteenth amendment to the Constitution.' That sentence was followed by the statement, 'The Supreme Court has pointed out some of the characteristics distinguishing a stock dividend which constitutes income from one which does not constitute income within the meaning of the Constitution.' Then followed a summary of our decisions, ending with three examples based on the Koshland case, Eisner v. Macomber, and the Gowran case. On November 15, 1940, this regulation was amended by striking out everything following the first sentence. This regulation, however, even in its original form did not and could not foreclose inquiry into the validity of the decision in Eisner v. Macomber. It did no more than state the constitutional principles on which the decided cases rested. It certainly did not indicate that the Treasury construed the statute more narrowly than the Constitution itself. However that may be, this Court on more than one occasion has refused to follow a Treasury regulation which it felt to be 'in the teeth' of the statute. Helvering v. Sabine Transportation Co., 318 U.S. 306, 63 S.Ct. 569, 87 L.Ed. -, decided March 1, 1943; Helvering v. Credit Alliance Corp., 316 U.S. 107, 62 S.Ct. 989, 86 L.Ed. 1307. If this regulation be construed to narrow the Act so as to tax only stock dividends permitted by Eisner v. Macomber, I would have less reluctance in striking it down than I have had in other instances.

But there is said to be lack of wisdom in this interpretation of the Act. It is argued that it would be disruptive of tax administration. It is urged that a decision which now overruled Eisner v. Macomber would be unfair because it would be retroactive. Those matters are none of our business. Every revenue act which Congress has passed has a retroactive effect. It is something on which taxpayers of necessity take their chances. Milliken v. United States, 283 U.S. 15, 23, 51 S.Ct. 324, 327, 75 L.Ed. 809. And many of the uncertainties in revenue acts necessarily are not resolved until this Court passes on them years later. Here there is no possible basis for complaint. These stock dividends were declared in 1939, three years after the Act making them taxable was passed. Of course, the taxpayer no more than Congress could predict what interpretation this Court would give the new statute. Sec 115(f) (1), however, made the risks apparent. The fact that some guessed wrong is wholly irrelevant to this litigation. Inequities may result from a holding in 1943 that Eisner v. Macomber has not been the law since 1936. But the relief against them lies with Congress. Our task ends if we erase Eisner v. Macomber and give Congress a clean slate on which to write. Then and only then can Congress design a tax system treating stock dividends consistently. So long as Congress has to guess whether or not this Court will overrule Eisner v. Macomber, any interim treatment which it gives stock dividends may have to be readjusted after this Court speaks so as to remove inequities which may have resulted.

I think Eisner v. Macomber should be overruled. The Sixteenth Amendment gives Congress the power 'to lay and collect taxes on incomes, from whatever source derived'. As Mr. Justice Brandeis stated in his dissent in Eisner v. Macomber, 252 U.S. at page 237, 40 S.Ct. at page 204, 64 L.Ed. 521, 9 A.L.R. 1570, that Amendment was designed to include 'everything which by reasonable understanding can fairly be regarded as income.' Stock dividends representing profits certainly are uncome in the popular sense. 'From a practical common-sense point of view there is something strange in the idea that a man may indefinitely grow richer without ever being subject to an income tax.' Powell, Income From Corporate Dividends, 35 Harv.L.Rev. 363, 376. The wealth of stockholders normally increases as a result of the earnings of the corporation in which they hold shares. I see no reason why Congress could not treat that increase in wealth as 'income' to them.3 See Collector v. Hubbard, 12 Wall. 1, 18, 20 L.Ed. 272; Helvering v. National Grocery Co., 304 U.S. 282, 288, 58 S.Ct. 932, 82 L.Ed. 1346; Powell, The Stock-Dividend Decision and The Corporate Nonentity, 5 Nat.Tax Assoc.Bull. 201. The notion that there can be no 'income' to the stockholders in such a case within the meaning of the Sixteenth Amendment unless the gain is 'severed from' capital and made availabel to the recipient for his 'separate use, benefit and disposal' (Eisner v. Macomber, 252 U.S. at pages 207, 211, 40 S.Ct. at page 193, 64 L.Ed. 521, 9 A.L.R. 1570) will not stand analysis. In cases like Koshland v. Helvering and Helvering v. Gowran where stock dividends were held to be taxable as income, both the original investment and the accumulations were retained by the company. Yet those cases hold that stockholders may receive 'income' from the operations of their corporation though the corporation makes no distribution of assets to them. And see United States v. Phellis, 257 U.S. 156, 42 S.Ct. 63, 66 L.Ed. 180; Rockefeller v. United States, 257 U.S. 176, 42 S.Ct. 68, 66 L.Ed. 186; Cullinan v. Walker, 262 U.S. 134, 43 S.Ct. 495, 67 L.Ed. 906; Marr v. United States, 268 U.S. 536, 45 S.Ct. 575, 69 L.Ed. 1079. Other cases make plain that there may be 'income' though neither money nor property has been received by the taxpayer. Benefits accruing as the result of the discharge of the taxpayer's indebtedness or obligations constitute familiar examples. Old Colony Trust Co. v. Commissioner, 279 U.S. 716, 49 S.Ct. 499, 73 L.Ed. 918; Douglas v. Willcuts, 296 U.S. 1, 56 S.Ct. 59, 80 L.Ed. 3, 101 A.L.R. 391; United States v. Hendler, 303 U.S. 564, 58 S.Ct. 655, 82 L.Ed. 1018. And increase in the value of property as a result of improvements made by the lessee are taxable income to the lesser even though the taxpayer could not 'sever the improvement begetting the gain from his original capital.' Helvering v. Bruun, 309 U.S. 461, 469, 60 S.Ct. 631, 634, 84 L.Ed. 864. The declaration of a stock dividend normally will not increase the wealth of the stockholders. Its accrual will usually antedate that event. See Haig et al., The Federal Income Tax (1921) p. 8. For it is the accumulation of corporate earnings over a period of time which marks any real accrual of wealth to the stockholders. The narrow question here is whether Congress has the power to make the receipt of a stock dividend based on earnings an occasion for recognizing that accrual of wealth for income tax purposes. Congress has done so through the formula of computing the 'income' to the stockholders at the 'fair market value' of the stock dividends received. Sec. 115(j). Whether that is the most appropriate procedure which could be selected for the purpose may be arguable. But I can see no constitutional reason for saying that Congress cannot make that choice if it so desires. That is one way—though perhaps at times a crude one—of measuring for income tax purposes the wealth which normally accrues to stockholders as a result of the earning of their corporation.

Mr. Justice BLACK and Mr. Justice MURPHY join in this dissent.