RESPONDENT: United States
LOCATION: Grace-New Haven Community Hospital
DOCKET NO.: 63
DECIDED BY: Warren Court (1958-1962)
LOWER COURT: United States Court of Appeals for the Seventh Circuit
CITATION: 366 US 213 (1961)
ARGUED: Nov 17, 1960
DECIDED: May 15, 1961
Facts of the case
Media for James v. United States
Audio Transcription for Oral Argument - November 17, 1960 in James v. United States
Number 63, Eugene C. James, Petitioner, versus United States.
Mr. Gorman, you may proceed.
Richard E. Gorman:
I am Your Honor.
Mr. Chief Justice and members of the Court.
This prosecution was commenced on December the 13th, 1957 by the return of an indictment in four counts.
These counts charged a violation of the Internal Revenue statutes for the years of 1951, 1952 and 1953 under the old Section 145 (b) and in 1954 under the applicable Section number 7201 of the Internal Revenue Code of 1954.
The matter was tried to a court on the waiver of a jury.
The amounts which were involved totaled approximately $700,000.
There was a finding of guilty by the Court and special findings of fact pursuant to the provisions of Rule 23 of the Federal Rules of Criminal Procedure were entered.
These findings of fact were most detailed and fulsome and appear in both the brief of the United States and of the brief of the petitioner.
In summary, it might be said that the petitioner, Eugene C. James was an official of the International Laundry Workers Union and also was the Secretary Treasurer of Local 46 of the International Laundry Workers Union in Chicago, Illinois.
The funds which were the subject matter of this embezzlement which was so found especially by the Court to be an embezzlement were funds which were contributed to a welfare -- a health and welfare organization within the international and within the local union.
These funds were especially contributed by management of the various members of the union or for the benefit of the various members of the union and were then contributed to a special fund which was set up in Indianapolis, Indiana for the purpose of purchasing this health and welfare plan for the members of the union.
The Mr. James was a Secretary Treasurer of the International Union as well as being a Secretary Treasurer of the Laundry Workers local number 46.
The funds were diverted by Mr. James and one Mr. Saperstein who was an agent of the insurance company which was underwriting these health and welfare plan.
The moneys were diverted to James and were set up in a special bank account in Chicago, Illinois and then were removed from that bank account by him, by the checks drawn to cash and in some instances checks drawn from his own name.
And they, in the bulk, set up the funds which, as I said, were the subject matter of this embezzlement.
The Court in its findings of fact held that this money was embezzled money and it was upon this finding of fact that appeal was taken to the Court of Appeals for the Seventh Circuit.
In its conclusions of law, the Court held that the lawyers -- that the financial or monitory gains to a taxpayer was a lawfully or unlawfully acquired, constitutes taxable income to the taxpayer in the year in which he had such control over it.
That is a practical matter he derived readily realizable economic value from it.
It is immaterial whether the receipt of funds by a taxpayer without results from misappropriation, embezzlement, or other lawful or unlawful acts.
It is with the Court's opinion that the embezzled funds in this case constituted a gain, which was such a gain that it could be -- it could be considered subject to income tax that we take exception in this petition here.
This matter was first before this Court in the case of Internal Revenue Commissioner versus Wilcox, and it is interesting to note that in that case in Judge -- Justice Murphy's decision, in his opinion, he started out with these words, “The sole issue here is whether embezzled money constitutes taxable income to the embezzler under Section 22 (a) of the Internal Revenue Code.”
That is the exact same question that we appear before this Court for its decisions here today.
And it is also interesting to note that in that case practically the same argument was made by the Government as has been submitted to this Court in the briefs which are submitted here.
Since the time of the Wilcox case, no other decision has treated that case as being overruled and, except the decision in this case in the Seventh Circuit, there have been numerous decisions by courts, various circuit courts across the land, in which the decision in the Wilcox case has been distinguished but there is no case except the case in which we appear before Your Honors today in which it has been held that the Wilcox case is no longer controlling in cases concerning embezzled funds.
We wish to point out to this Court in answer to the assertions in the Government's brief that there has been no intension and there is no intension on our part to make an argument as to the illegality of the receipt of the funds.
Our contention is strictly this; that embezzled funds do not constitute a gain, a taxable gain, to the embezzler, and therefore, they have been held not to be income -- not to be subject to the income tax laws.
The difficulty that seems to have arisen in connection with the cases which have been held or heard since the Wilcox decision is been the dicta which has been put forward by the various courts of appeal that is to the effect that the Rutkin case, a case subsequent to Wilcox, which was decided by this Court in 1954, pardon me in 1952, in some way overruled the Wilcox case.
To this argument, we can see no basis, because in the Rutkin case itself, in the opinion in the Rutkin case, this Court specifically stated that the Wilcox case was a case of embezzlement and that this Court left that case on its own facts and that the Rutkin case was a case of extortion.