dissenting: I must dissent with respect to the result reached by the majority on the first issue. It is clear and I agree that the decision should turn primarily upon the identity of the property which was transferred as a gift and the stock dividends which are here sought to be included in the decedent’s estate. On the principle enunciated in Eisner v. Macomber, 252 U. S. 189, that shares of stock are merely evidence of a proportionate interest in corporate assets, the majority concludes we are not here involved with corporate stock as property within the meaning of section 811 (c) but rather with a proportionate share of a corporation which remained unchanged in proportion upon the issuance of stock dividends; that therefore not only an original gift of stock in contemplation of death but stock dividends issued thereon are includible in the decedent’s estate for Federal estate tax purposes.
Eisner v. Macomber was an income tax case and the principle there propounded has no application to the issue here in controversy. There the issue was simply whether stock dividends are income while here the question is whether a stock dividend is an item of property separate and distinct from the stock with respect to which it was issued.
In my view the separateness of the two categories of property is amply demonstrated by this record. That neither the stock dividends nor the assets upon which they were issued were in existence at the time of the gift in contemplation of death is obvious. (Some portion of the profits upon which the first year dividends were based may have been in existence.) It follows they were not the property transferred and cannot be included in the decedent’s estate under section 811 (c). See Commissioner v. McDermott's Estate, 222 F. 2d 665. That the stock dividends are distinct from the shares of stock transferred as a gift is evident too from the fact that they represent new capital investment or plowback in the corporate business. It is a stipulated fact here that the stock dividends were issued upon “current” earnings. Such assets, had they been available as cash dividends, necessarily could not have been the subject of a gift by the decedent. Of some significance is the fact that after issuance of the stock dividends the stipulated value of the stock transferred as a gift was not lessened and the new stock was of equal value which indicates an investment of new and additional capital under these facts.
Burns v. Commissioner, 171 F. 2d 739, admonishes us that “[t]he tax statute in question should be strictly construed in favor of the taxpayer.” The majority holding here, by including in the gross estate shares of stock not expressly required by the statute to be so included, construes the statute strictly against the taxpayer.
While Eisner v. Macomber, supra, has long been a landmark in income tax law, it has not until now been considered a directional light in the interpretation of estate tax law. The case arose under section 2 (a) of the Revenue Act of September 8, 1916. As stated by the Supreme Court, the question before it in the case was:
This ease 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.
The Court’s holding on the question presented was that neither under the Sixteenth Amendment nor otherwise did Congress have power to tax without apportionment a true stock dividend made lawfully and in good faith or the accumulated profits behind it, “as income of the stockholder.” (Emphasis supplied.) Obviously the question there involved is far removed from the estate tax question confronting us here.
However, since the majority rests its holding on Eisner v. Macomber, it can well be urged that the case supports an affirmative answer to the real question presented here. In that case, the Court said (p. 212):
It is said that a stockholder may sell the new shares acquired in the stock dividend; and so he may, if he can find a buyer. It is equally true that if he does sell, and in doing so realizes a profit, such profit, like any other, is income, and so far as it may have arisen since the Sixteenth Amendment is taxable by Congress without apportionment. The same would be true were he to sell some of his original shares at a profit. * * *
The foregoing is a clear recognition by the Court that the shares received as a stock dividend are a separate and distinct item of property from the shares with respect to which they were distributed.
The decedent made inter vivos gifts of 774 shares of stock in Jacksonville Paper Company. The statute requires that the value of only that number of shares, and no more, be included in her gross estate.
Mulroney, J., agrees with this dissent.