James v. United States (1961)

SCOTUSCase
Litigants=James v. United States
ArgueDate=November 17
ArgueYear=1960
DecideDate=May 15
DecideYear=1961
FullName=James v. United States
USVol=366
USPage=213
Citation=81 S. Ct. 1052; 6 L. Ed. 2d 246; 1961 U.S. LEXIS 2014; 61-1 U.S. Tax Cas. (CCH) P9449; 7 A.F.T.R.2d (RIA) 1361; 1961-2 C.B. 9
Prior=Certiorari to the United States Court of Appeals for the Seventh Circuit
Subsequent=
Holding=Ill-gotten gains constitute taxable income, even if they must be repaid.
SCOTUS=1958-1962
Majority=Warren
JoinMajority=Brennan, Stewart
Concurrence=Black (in part)
JoinConcurrence=Douglas
Concurrence2=Harlan (in part)
JoinConcurrence2=Frankfurter
Concurrence3=Whittaker (in part)
JoinConcurrence3=Black, Douglas
Concurrence4=Clark (in part)
LawsApplied=U.S. Const., U.S. Const. amend. XVI

"James v. United States", 366 U.S. 213 (1961)ref|citation, was a case in which the United States Supreme Court held that money obtained by a taxpayer illegally was taxable income, even though the law might require that taxpayer to repay the ill-gotten gains to person from whom they had been taken.

Facts

The defendant, Eugene James, was an official in a labor union who had embezzled more than $738,000 in union funds, and did not report these amounts on his tax return. He was tried for tax evasion, and claimed in his defense that embezzled funds did not constitute taxable income because, like a loan, the taxpayer was legally obligated to return those funds to their rightful owner. Indeed, James pointed out, the Supreme Court had previously made such a determination in "Commissioner v. Wilcox", 327 U.S. 404 (1946). However, this defense was unavailing in the trial court, where Eugene James was convicted and sentenced to three years in prison.

Issue

The Supreme Court was called upon to determine whether the receipt of embezzled funds constitutes income taxble to the wrongdoer, even though an obligation to repay exists.

Holding

The Supreme Court ruled that under section 22(a) of the Internal Revenue Code of 1939 and section 61(a) of the Internal Revenue Code of 1954, the receipt of embezzled funds was includible in the gross income of the wrongdoer and was taxable to the wrongdoer, even though the wrongdoer had an obligation to return the funds to the rightful owner.

Rationale

The Court was divided between several different rationales. The majority opinion was written by Chief Justice Earl Warren, joined by Justices Brennan and Stewart. That opinion held that if a taxpayer receives income – legally or illegally – without consensual recognition of obligation to repay, that income is taxable.

The Court noted that the Sixteenth Amendment did not limit its scope to "lawful" income, a distinction which "had" been found in the Revenue Act of 1913. The removal of this modifier indicated that the framers of the Sixteenth Amendment had intended no safe harbor for illegal income. The Court expressly over-ruled "Commissioner v. Wilcox" and ruled that James was therefore liable for the federal income tax due on his embezzled funds. The Court also ruled, however, that Eugene James could not be held liable for the willful tax evasion because it is not possible to willfully violate laws that were not established at the time of the violation.

Although James avoided the criminal sentence, the opinion of the Court left James in a situation where he would be required to repay the embezzled $738,000 to the union, but would also be required to pay over a half-million dollars in taxes on those funds, as though he had been able to keep them.

Justice Black, joined by Justice Douglas, wrote an opinion concurring in the dismissal of the indictment against James, but dissenting from the over-ruling of "Wilcox". Justice Black raised a Federalism argument, arguing that this ruling constituted a preemption of state criminal jurisdiction.

Justice Harlan, joined by Justice Frankfurter, wrote an opinion concurring with the over-ruling of "Wilcox", but contending that James should have been set for a new trial, rather than set free of criminal liability. Justice Clark wrote a brief concurrence, also agreeing with the over-ruling of "Wilcox", but stating that James' conviction should also have been upheld.

ee also

*List of United States Supreme Court cases, volume 366

External links

*ussc|366|213|Text of the opinion on Findlaw.com