In the 1920 case of Goodrich v. Edwards, United States Collector of Internal Revenue for the Second District of the State of New York, the Supreme Court was tasked with determining whether a tax on stock dividends constituted an unconstitutional direct tax. The plaintiff, Goodrich, argued that such a tax violated Article I Section 9 Clause 4 and Amendment XVI to the Constitution because it was not apportioned according to population as required by law for direct taxes. However, in its decision, which upheld previous rulings made in Eisner v Macomber (1920), Peck & Co v Lowe (1918) and Towne v Eisner (1918), among others; The Supreme Court ruled against Goodrich's claim stating that income from stock dividends is considered "income" under federal law and therefore can be taxed without being apportioned according to population. This ruling reinforced Congress' power to levy income taxes on all sources derived from capital or labor.

In the dissenting opinion for Goodrich v. Edwards, it was argued that the majority's decision to uphold a tax on stock dividends as income under the Sixteenth Amendment was incorrect. The dissenters believed that this interpretation of "income" expanded beyond its traditional definition and would lead to an unfair burden on shareholders who did not actually receive any monetary gain from such dividends; instead, they simply saw their ownership interest in a company redefined. They contended that these types of stock dividends should be viewed more accurately as corporate restructuring rather than taxable income because no actual wealth is transferred or created through them - only existing property rights are rearranged among shareholders. This view held by the minority justices emphasized strict adherence to legal definitions and principles over what they perceived as economic expediency driving the majority's ruling.