Boulware v. United States - Oral Argument - January 08, 2008

Boulware v. United States

Media for Boulware v. United States

Audio Transcription for Opinion Announcement - March 03, 2008 in Boulware v. United States

Audio Transcription for Oral Argument - January 08, 2008 in Boulware v. United States

John G. Roberts, Jr.:

We'll hear argument next in Case 06-1509, Boulware v. United States.

Mr. Cline.

John D. Cline:

Mr. Chief Justice, and may it please the Court: Congress placed the phrase 301(a) of the Internal Revenue Code to make clear that the taxation rules in Section 301(c) do not apply to corporate payments that a shareholder receives in a nonshareholder capacity.

David H. Souter:

May I ask you a question which is going to come up sooner or later?

And it's kind of a threshold question.

So, if I may, let me interrupt you with it now.

You emphasize the significance of the limiting condition "with respect to the stock".

But before you get to that phrase, Section 301 refers to a distribution by the corporation.

And my question is this: Let's assume that we... we accept your... your position that the circuit was wrong in requiring an offer of proof of intent to return capital.

Isn't it also the case that you would still have an obligation, if you're going to take advantage of this section, to offer some evidence with respect to the fact that there was a corporate distribution involved?

And as I understand it, your evidence is or the Government's evidence and yours is that, you know, there was skimming, there was misdirection, et cetera, but there was no indication, there's no evidence that there was any distribution, in the normal sense of that word, by a corporation.

So it seems to me that if you... if you win the case in the sense of convincing us that the circuit was wrong with respect to the specific intent requirement, you would still be left without a defense because you have not come forward with any evidence that indicates a distribution.

Am I wrong?

John D. Cline:

Yes, Your Honor, I believe you are.

David H. Souter:

I thought you were going to say that.

John D. Cline:


Although I agree that the question of a distribution is important, and I think implicit in that question, in that term, although the courts have not addressed it, is some sort of corporate action.

Where you have a controlling shareholder, as we do here with Mr. Boulware, who is a 50 percent share owner, he's the president, he's the founder, he dominates this company, his action is action on behalf of the corporation.

David H. Souter:

Well, it certainly can be, and there's no question about that, but isn't there some point of informality or some point, I guess, of formality or relevance to corporate practice that has to be reached?

In other words, he may keep lousy books, he may be very sloppy, but directing funds to one's girlfriend is not the act of a corporation.

And it seems to me that the kind of... of actions that he took to get or to direct the payment of moneys could not, by any stretch of the imagination, be regarded as an act of this corporation or of any corporation.

John D. Cline:

With respect, Justice Souter, Justice Souter, I disagree.

There are, I've discovered, hundreds of corporate diversion cases involving a very similar fact pattern and a very similar fact pattern to this, where have you a corporation that is really the creature of one person.

It's formed by one person.

He chose the corporate form, but in effect he is the corporation.

That's the case of Mr. Boulware and it's the case in a lot of these diversion cases, and--

David H. Souter:

Well, in this case, he's a 50 percent owner, as I understand it.

He formed the corporation, but isn't 50 percent of the stock owned by the trust for the love child of him and the girlfriend?

John D. Cline:

--It is indeed, although it's important to keep in mind that the girlfriend, according to the Government's evidence, received a very large chunk of this money.

So in effect what we have here is a situation where you not only have a 50 percent shareholder who dominates the corporation; the other 50 percent... the trustee for the other 50 percent shareholder is the recipient of the money and is certainly knowledgeable about most, if not all, of what's going on.