Talk:Eisner v. Macomber

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Did her economic worth increase, or not?[edit]

I'm confused.

In the "holding" section, we say that she is not taxed "even where the dividend indirectly represented accrued earnings of the corporation."
However, under "Economic substance of a stock dividend", we say that "Metaphorically, the "pie" is still the same size—but it has been sliced into more pieces, each piece being proportionately smaller."

Is it possible that the "stock split" example doesn't apply perfectly to Mrs. Macomber's case? If so, could someone revise the "Economic substance ..." section to reflect this? Agradman (talk) 00:34, 10 May 2009 (UTC)[reply]

Well, I argue that the stock split example does apply. A pure stock dividend and a stock split are essentially the same, in economic substance, at least for purposes of this discussion. A pure stock dividend is where the shareholder has no power to choose between receiving cash and "additional shares". Where the shareholder has no legal right to choose to receive cash under the terms of the "dividend," this is not, in economic substance, a cash dividend. So, pretending that we can treat the shareholder as receiving cash and then using the cash to buy additionally-issued shares of stock simply does not work under Eisner v. Macomber.

I think that the key to Eisner v. Macomber is the concept of realization or separation -- not the increase in economic worth of the shareholder (or lack thereof). I think that what the Court was saying was that the reason Ms. Macomber had not realized income was that, well, she hadn't really received anything -- no property (money or otherwise) had been distributed to her by the corporation. Not only was there no "actual distribution'; there was simply no constructive distribution either. The corporation simply said, instead of owning, say one share worth $10 per share, you now own two shares worth $5 per share.

Had Ms. Macomber had the choice to elect to receive cash instead of "shares", then yes, you could argue that she had could be TREATED as having constructively received cash -- and then turned around used the cash to buy the additional shares.

However, I guess I need to check the case opinion again and make sure about the facts on Ms. Macomber. Did she have the option to take cash, or not? My memory is that she did not have that option (or if she did, it was never mentioned by the Court). But it's been a looonnnnnnnngggg time since I read the case. Too late at night to get into it now, though. Stay tuned.

Thoughts, anyone? Famspear (talk) 05:31, 10 May 2009 (UTC)[reply]

I totally agree with you, that the "key" is "realization" and not increase in economic worth. In agreeing, I'm relying on the excerpt I provided from Professor Chirelstein's hornbook -- which I put under the new heading "Academic Commentary".

Based on what Chirelstein says, the third paragraph of "economic substance..." is the truly helpful one. I think the first two paragraphs should be revised to indicate that, while perfectly true, they would be improper grounds for deciding the case. (because Chirelstein would point out that "the pie is still the same size" after a cash dividend too!).

Agradman (talk) 05:49, 10 May 2009 (UTC)[reply]

I would say, go ahead and make the change, so everyone can see how it looks. Famspear (talk) 21:48, 10 May 2009 (UTC)[reply]

OK, take a look. I'm pretty pleased with how much of your original content is still there.

I was also able to redistribute the Chirelstein material throughout the article (into the "Economic substance," "Issue", and "Dissent" sections), and reduce the amount of direct quotation. Agradman (talk) 23:06, 10 May 2009 (UTC)[reply]