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James v. United States - 366 U.S. 213, 81 S. Ct. 1052 (1961)


The language of Internal Revenue Code of 1939, 26 U.S.C.S. § 22(a), gains or profits and income derived from any source whatever, and the more simplified language of Internal Revenue Code of 1954, 26 U.S.C.S. § 61(a), all income from whatever source derived, have been held to encompass all accessions to wealth, clearly realized, and over which the taxpayers have complete dominion.


Defendant Eugene C. James was a union official who, with another person, embezzled in excess of $ 738,000 during the years 1951 through 1954 from his employer union and from an insurance company with which the union was doing business. James failed to report these amounts in his gross income in those years and was convicted in federal district court for willfully attempting to evade the federal income tax due for each of the years 1951 through 1954 in violation of § 145 (b) of the Internal Revenue Code of 1939 and § 7201 of the Internal Revenue Code of 1954. He was sentenced to a total of three years' imprisonment. On James' appeal, the United States Court of Appeals for the Seventh Circuit affirmed. James was granted a writ of certiorari.


Were the receipt of embezzled funds constitute income taxable to the wrongdoer?




On certiorari, the Supreme Court of the United States reversed the judgment appellate court's and remanded the case to the district court with directions to dismiss the indictment. The Court held that embezzled money constituted gross income of the embezzler in the year in which the funds were misappropriated under 26 U.S.C.S. § 22(a) and § 61(a). Both lawful and unlawful gains were comprehended within the term "gross income." Congress intended to tax income both from both legal and illegal sources to remove the incongruity of having gains of the honest laborer taxed and the gains of dishonest immune. Further, the language of 26 U.S.C.S. § 22(a) and of § 61(a) encompassed all accession to wealth clearly realized and over which a taxpayer had complete dominion. The Court held, however, that in the absence of evidence of the element of "willfulness," which was defined as an evil motive and want of justification, neither James' conviction nor the indictment against him could stand.

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