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

Summary: In Eisner v. Macomber, the U.S. Supreme Court ruled that for purposes of the Sixteenth Amendment, “income” was “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.”  Macomber introduced the realization requirement to the federal income tax, and the decision continues to be cited in such contexts as cryptocurrency hard forks and the constitutionality of provisions denying deductions for cannabis businesses.

Background:  The U.S. Constitution prohibits Congress from imposing an unapportioned direct tax.[1]  In 1895, the U.S. Supreme Court ruled that an attempt by Congress to tax incomes uniformly throughout the United States was unconstitutional due to this constitutional prohibition.[2]

On February 3, 1913, the Sixteenth Amendment to the U.S. Constitution was ratified. According to the Sixteenth Amendment, “Congress shall have power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several States, and without regard to any census or enumeration.”[3]  That same year, Congress passed the Revenue Act of 1913, inaugurating the modern federal individual income tax.[4]

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