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U.S. Federal Income Tax

Subjugation by taxation

16th Amendment Income is "Return on Investment"

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Eisner v. Macomber, 252 U.S. 189 (1920)

This case presents the question whether, by virtue of the Sixteenth Amendment, Congress has the power to tax, as income of the stockholder and without apportionment, a stock dividend made lawfully and in good faith against profits accumulated by the corporation since March 1, 1913.

        This case raises an issue of just what is the meaning of income in the Sixteenth Amendment.

In order, therefore, that the clauses cited from article 1 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 becomes 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.

        If it is essential to determine "what is, and what is not income", an implication arises that not all revenue is (16th amendment) income.

        In order, therefore, that the clauses cited from article 1 of the Constitution (direct taxes must be apportioned) may have proper force and effect, save only as modified by the amendment (power to lay and collect taxes on incomes, from whatever source derived, without apportionment) it becomes essential to distinguish between what is and what is not 'income,' as the term is there used...

For the present purpose we require only a clear definition of the term 'income,' as used in common speech, in order to determine its meaning in the amendment, and, having formed also a correct judgment as to the nature of a stock dividend, we shall find it easy to decide the matter at issue. 

After examining dictionaries in common use (Bouv. L. D.; Standard Dict.; Webster's Internat. Dict.; Century Dict.), we find little to add to the succinct definition adopted in two cases arising under the Corporation Tax Act of 1909 (Stratton's Independence v. Howbert; Doyle v. Mitchell Bros. Co.), 'Income may be defined as the gain derived from capital, from labor, or from both combined,' provided it be understood to include profit gained through a sale or conversion of capital assets, to which it was applied in the Doyle Case.

        Here's a parse to make sure you do not forget the context of the Stratton's case:

[Corporate] 'income' may be defined as the [corporate] gain derived from capital, from labor, or from both combined, provided it be understood to include [corporate] profit gained through a sale or conversion of [corporate] capital assets, to which it was applied in the Doyle Case.

        And don't forget what the Doyle case said itself:

'Income,' ... imports, ... the idea of gain or increase arising from corporate activities.
Doyle v. Mitchell Bros. Co., 247 U.S. 179 (1918)

        There can be NO misunderstanding that the 1909 definition of income did NOT include the revenue ("payroll" or "compensation for labor") coming in to a natural person.  What I refer to as "Payroll" (compensation for labor), is the particular revenue stream to the natural person in exchange or trade for his equally valued labor.

        The 1909 Tax Act definition of "income" did NOT include the revenue that I refer to as "Return On Investment"  which is descriptive of the particular revenue stream to the natural person because of ownership of invested property.  (They could have as covered on page 2580 of the House report which will follow shortly.)

        The definition of the "income" in 1909 Tax Act did not include "payroll" or "compensation for labor" and the door to taxing "payroll" or "compensation for labor" AS income was NEVER opened.

        It is at this point in the judicial chronology after the Supreme Court cases presented on the previous three pages, the [corporate] context of the three rulings under the 1909 tax act is truncated from the definition.  Or so it appears.

       The truncation appears to exist from this point onward, and shall be examined in due course.

        Returning to Eisner v. Macomber.

Eisner v. Macomber, 252 U.S. 189 (1920)

'Income may be defined as the gain derived from capital, from labor, or from both combined,' provided it be understood to include profit gained through a sale or conversion of capital assets, to which it was applied in the Doyle Case.

Brief as it is, it indicates the characteristic and distinguishing attribute of income essential for a correct solution of the present controversy. The government, although basing its argument upon the definition as quoted, placed chief emphasis upon the word 'gain,' which was extended to include a variety of meanings; while the significance of the next three words was either overlooked or misconceived.

'Derived-from-capital'; 'the gain-derived-from-capital,' etc.

Here we have the essential matter: not a gain accruing to capital; not a growth or increment of value in the investment; but a gain, a profit, something of exchangeable value, proceeding from the property, severed from the capital, however invested or employed, and coming in, being 'derived'-that is, received or drawn by the recipient (the taxpayer) for his separate use, benefit and disposal- that is income derived from property.

Nothing else answers the description.

        The "description" itself can only be described as "Return on Investment".


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