g upon definitions formulated in cases construing the Corporation
Tax Act of 1909,[14] the Court initially described income as the "gain
derived from capital, from labor, or from both combined," inclusive of
the "profit gained through a sale or conversion of capital assets";[15]
and in the following array of factual situations has subsequently
applied this definition to achieve results that have been productive of
extended controversy.

CORPORATE DIVIDENDS: WHEN TAXABLE AS INCOME

Rendered in conformity with the belief that all income "in the ordinary
sense of the word" became taxable under the Sixteenth Amendment, the
earliest decisions of the Court on the taxability of corporate dividends
occasioned little comment. Emphasizing that in all such cases the
stockholder is to be viewed as "a different entity from the
corporation," the Court in Lynch _v._ Hornby[16] held that a cash
dividend equal to 24% of the par value of outstanding stock and made
possible largely by the conversion into money of assets earned prior to
the adoption of the amendment, was income taxable to the stockholder for
the year in which he received it, notwithstanding that such an
extraordinary payment might appear "to be a mere realization in
possession of an inchoate and contingent interest * * * [of] the
stockholder * * * in a surplus of corporate assets previously existing."
In Peabody _v._ Eisner,[17] decided on the same day and deemed to have
been controlled by the preceding case, the Court ruled that a dividend
paid in the stock of another corporation, although representing earnings
that had accrued before ratification of the amendment, was also taxable
to the shareholder as income. The dividend was likened to a distribution
in specie.

THE "STOCK DIVIDENDS CASE"

Two years later the Court decided Eisner _v._ Macomber,[18] and the
controversy which that decision precipitated still endures. Departing
from the interpretation placed upon the Sixteenth Amendment in the
earlier cases; namely, that the purpose of the amendment was to correct
the "error" committed in the Pollock Case and to restore income taxation
to "the category of indirect taxation to which it inherently belonged,"
Justice Pitney, who delivered the opinion in the Eisner Case, indicated
that the sole purpose of the Sixteenth Amendment was merely to "remove
the necessity which otherwise might exist for an apportionment among the
States of taxes laid on income." He thereupon