James v. United States
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| James v. United States | |||||||||||||
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| Argued November 17, 1960 Decided May 15, 1961 |
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| Holding | |||||||||||||
| Ill-gotten gains constitute taxable income, even if they must be repaid. | |||||||||||||
| Court membership | |||||||||||||
| Chief Justice: Earl Warren Associate Justices: Hugo Black, Felix Frankfurter, William O. Douglas, Tom C. Clark, John Marshall Harlan II, William J. Brennan, Charles Evans Whittaker, Potter Stewart |
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| Case opinions | |||||||||||||
| Majority by: Warren Joined by: Brennan, Stewart Concurrence by: Black (in part) Joined by: Douglas Concurrence by: Harlan (in part) Joined by: Frankfurter Concurrence by: Whittaker (in part) Joined by: Black, Douglas Concurrence by: Clark (in part) |
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| Laws applied | |||||||||||||
| U.S. Const., U.S. Const. amend. XVI | |||||||||||||
James v. United States, 366 U.S. 213 (1961), 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.
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[edit] Facts
The defendant, 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 taxes. 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 James was convicted and sentenced to three years in prison.
[edit] Issue
The Supreme Court was called upon to determine whether embezzled funds constitute taxable income, even though an obligation to repay exists.
[edit] Opinion of the Court
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 1913 Tax Act. 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 found that James was therefore liable for the tax due on his embezzled funds. However, the Court also found that 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.
