Document: 128 S. Ct. 1168 (2008) Michael H. BOULWARE, Petitioner, v. UNITED STATES. No. 06-1509. Supreme Court of United States. Argued January 8, 2008. Decided March 3, *1172 John D. Cline, San Francisco, CA, for petitioner. Deanne E. Maynard, Washington, D.C., respondent. Counsel Record, C. Kevin Marshall, Kelli Crouch Jones Day, Petitioner Boulware. Paul Clement, Solicitor General, Richard T. Morrison, Acting Assistant Attorney R. Dreeben, Deputy to the Alan Hechtkopf, Karen Quesnel, Robert Lyons, Attorneys, Department Justice, *1173 Justice SOUTER delivered opinion Court. Sections 301 and 316(a) Internal Revenue Code set conditions treating certain corporate distributions as returns capital, nontaxable recipient. 26 U.S.C. §§ 301, (2000 ed. Supp. V.). The question here is whether a distributee accused criminal tax evasion may claim return-of-capital treatment without producing evidence that either he or corporation intended capital return when distribution occurred. We hold no such showing required. I "[T]he capstone [the] system sanctions . calculated induce fulfillment every duty under income law," Spies States, 317 U.S. 492, 497, 63 364, 87 L. Ed. 418 (1943), § 7201, making it felony willfully "attemp[t] in any manner evade defeat imposed by" Code.[1] One element 7201 "the existence deficiency," Sansone 380 343, 351, 85 1004, 13 2d 882 (1965); see also Lawn 355 339, 361, 78 311, 2 321 (1958),[2] which Government must prove beyond reasonable doubt, ibid. ("[O]f course, conviction upon charge attempting assessment taxes by filing fraudulent cannot stand absence proof deficiency"). Any deficiency determination this case will turn on Code. According 301(a), unless another provision requires otherwise, "distribution property" "made shareholder with respect its stock shall be treated provided [§ 301(c)]." Under 301(c), portion "dividend," defined 316(a), included recipient's gross income; not dividend is, depending shareholder's basis his stock, gain sale exchange ordinarily taxable gain. Finally, defines "dividend" "any property made shareholders "(1) out earnings profits accumulated after February 28, 1913, "(2) year (computed close diminution reason during year), regard amount at time was made." together thus make "earnings profits"[3] decisive fact determining *1174 consequences from stock. This requirement "relating status responsive felt need protecting tax." 4 Bittker & Lokken ¶ 92.1.1, p. 92-3. II In proceeding, petitioner Boulware charged several counts false return, stemming diversion funds Hawaiian Isles Enterprises (HIE), closely held president, founder, controlling (though sole) shareholder. At trial,[4] States sought establish had received "systematically divert[ing] HIE order support lavish lifestyle." 384 F.3d 794, 799 (C.A.9 2004). Government's showed "[Boulware] gave millions dollars money girlfriend wife reporting personal returns. [H]e siphoned off primarily writing checks employees friends having them cash him, diverting payments customers, submitting invoices HIE, laundering through companies Kingdom Tonga Hong Kong." Ibid. defense, introduce retained current relevant years, consequence (he argued) effect have been up See 301(c)(2). Because nontaxable, argument went, could required convict him. moved limine bar Boulware's theory, grounds "irrelevan[ce] [this] case," App. 20. relied Ninth Circuit's decision Miller, 545 F.2d 1204 (1976), court case, deemed only "some demonstration part taxpayer and/or [a was] return," id., 1215. Boulware, argued, offered demonstration. 21. District granted motion, "to present [HIE's] alleged over-reporting income, an offer relating issue dividends," 135, denied request. said "[n]ot would much [his proffered] excludable expert legal *1175 opinion, plainly insufficient Miller 138, accordingly declined instruct jury theory. rejected alternative defenses (that diverted were advances loans, used moneys purposes), found him guilty nine counts, four five return. Circuit affirmed. 470 931 (2006). It acknowledged "imposing intent creates disconnect between civil liability," but thought characterization purposes does dictate their charge." F.3d, 934. test "whether defendant has attempted payment "`presented concrete amounts considered, intended, recorded records they made,'" 935 (quoting supra, 1215), proffer "properly inadequate," 935. Judge Thomas concurred because panel bound noted "Millerand now majority opinionhold criminally sanctioned owing penny government." 938. That, said, "indicate[s] logical fallacy, flat contradiction statute's deficiency." (internal quotation marks omitted).[5] certiorari, 551 ___, 32, 168 808 (2007), resolve split among Courts Appeals over application informally transferred proceedings.[6] vacate remand. III A colorful behavior described allegations reminder classifications like "return capital" objective economic realities transaction rather than. particular form parties employed," Frank Lyon Co. 435 561, 573, 98 1291, 55 550 (1978); "given result *1176 end straight path different following devious path," Minnesota Tea Helvering, 302 609, 613, 58 393, 82 474 (1938).[7] As reality informal receipt "may effective means distributing stockholders formal declaration dividend," Palmer Commissioner, 63, 69, 67, 50 (1937), returning Accordingly, "[a] capacity subject even though declared fashion." B. J. Eustice, Federal Income Taxation Corporations Shareholders 8.05[1], pp. 8-36 8-37 (6th ed.1999) (hereinafter Eustice); Gardner, Tax Consequences Shareholder Diversions Close Corporations, 21 L.Rev. 223, 239 (1966) Gardner) ("Sections 316 do require taken those provisions apply"). There doubt substance remains right touchstone characterizing diverts before can corporation's books. While "never pass hands," Eustice 8.05[9], 8-51, seen dividends Truesdell 89 T.C. 1280, 1987 WL 258105 (1987) (treating "constructive" proceedings). point, again, "taxation so concerned refinements title actual command taxedthe benefit paid." Corliss Bowers, 281 376, 378, 336, 74 916 (1930); Griffiths 308 355, 358, 60 277, 84 319 (1939).[8] *1177 B Miller's view treat corresponding contemporaneous sits uncomfortably law's realism, wording well. sections are written, stock" depend, anyone's purpose get back, facts wholly independent intent: profits, taxpayer's Cf. Service (IRS) Action Decision 1988-25, 1988 570761 (Sept. 12, 1988) (recommendation regarding acquiescence); IRS Non Docketed Advice Review, 1989 1172952 (Mar. 15, 1989) (reply request reconsideration) ("[I]ntent irrelevant. [E]very ordinary gain, all pursuant section 301(c) dependent basis. computational intent"). When went other way, needless say, textual hook requirement, argued way avoid two supposed anomalies. First, applying cases unnecessarily emphasizes exact while "completely ignor[ing] one essential crime charged: willful ." F.2d, 1214. But there analytical mistake here. Willfulness crimes substantive defining expressly it, ("Any person who attempts. ."); 7206(1) ("Willfully makes subscribes "). willfulness addressed trial requiring it. Nothing written requirement) relieves burden proving impedes doing if there. Those simply address evasion, deficiency, both straightforwardly (in instructions bench findings) tacking onto rule distinguishing Second, worried intent, midst financial difficulty immune punishment (to extent stock) failure report sums very same convicted experienced successful profits." "Such result," court, "would constitute extreme example substance." assumed *1178 unreported acquittal author called trumping crime. 1173,[9] (received value distributed exceed taxpayer-shareholder's Thus liability merely follows distinguish return), Without nothing some act expressing evade, and, acting "bad intentions, alone, [is] punishable," D'Agostino, 145 73 (C.A.2 1998). neither nor justified thinking improve things more evasively inclined dropping finding device exempt capital.[10] Even compelling reasons extend owed, bears repeating "[t]he spirit doctrine denies federal judiciary power create forthrightly admonishes we should enlarge reach enacted constituting anything less than incriminating components contemplated words statute," Morissette 342 246, 263, 72 240, 96 288 (1952) (opinion Jackson, J.). If amending, Congress rewriting. *1179 C Not devoid claimed suffers demerit anomalies own. First most obviously, odd stalks grafting given correct rules often become known year, regardless understanding months earlier made. Section 316(a)(2) constructive reference "computed deliberate shareholder, everyone expecting profitable considering dividend, liable company closes red (so long covers distribution); clear forms filed,[11] violate paying received, being beside point. And since control, condition statute says about all. interpretation strange reason, too (a tension assumption evasion). text 301(a) ostensibly provides variations separate otherwise. Yet effectively converts into partial coverage, leaving class limbo cases. That "shall 301(c)]," fail lack way; did (and gain), leave unaccounted for. answer say 61(a) step where pushed out. Although "[e]xcept otherwise provided," "all whatever source derived," plain provide So using stopgap sanction yet eccentricity: cover what "shall" (the specific made), applied *1180 terms "otherwise provided" 301(a)). implausibility statutory reading forces resort atextual clearer discussion own rule: openly construing draw distinction consequences, disparity heavily against construction (quite apart entails deficiency). erred judgment here, relying likewise erroneous. IV raised calls affirmance face Appeals's reliance Miller. defend differential cases, Brief 24, stops short fully defending treatment. argument, instead, affirm (or, parity reasoning, dividend), first "with stock." Id., 19 quotations omitted). says, limiting condition, never intent. `distribution. corporation's] stock'"); Tr. Oral Arg. 44 ("[J]ust clear, arguing here"). course 301(a). 1173-1174.[12] variously ownership stock," 16; "`an paid [be] such,'" CFR 1.301-1(c) (2007) (emphasis deleted)). This, however, place home to. condition. Facts bearing range ownership[13] *1181 employment (whether, example, efforts behalf good salary). raked mind, seems pretermitted full consideration defensive proffer, now, canvas familiar whole evidentiary record.[14] version position, diversions unlawful, 34-37; n. 5, argues inapplicable illegal transfers, ("[T]he `no income' necessarily apply unlawful diversion, embezzlement, theft, violation law, attempt defraud third party creditors" original)); supra. goes far rational jury's conclusion [Boulware] unlawfully funds." 37. decline take ever considered Circuit. do, reject verdict case. True, jurors suggestion purposes. asked, answered, breached fiduciary wife, embezzled HIE's outright. *1182 V govern show demonstrate owed. vacated, remanded further proceedings consistent opinion. ordered. NOTES [1] related provision, 7206(1), criminalizes believed materially false. 9, infra. [2] elements willfulness[,] affirmative (1965). divided "substantial," Daniels, 387 636, 640-641, (C.A.7 2004) (collecting cases); [3] "comprehensively define `earnings profits,'" Lokken, Income, Estates Gifts 92.1.3, 92-6 (3d ed.2003) Lokken), "[p]rovisions regulations point departure," 92-9. [4] actually second charges, convictions vacated 794 (2004). trial, conspiracy statements federally insured institution, 18 371. affirmed around, include charge. [5] prevail because, view, "unlawful," 938-939. [6] noted, holds consulted until produces (2006) (case below). By contrast, Second allows invoke capital. Bok, 156 157, 162 (1998) ("[I]n determinative conduct"). Meanwhile, Third, Sixth, Eleventh Circuits arguably position altogether involving distributions. Williams, 875 846, 850-852 (C.A.11 1989); Goldberg, 330 30, 38 (C.A.3 1964); Davis 226 331, 334-335 (C.A.6 1955); 16 ("[T]hese read allocation issue, applicable principles"). [7] recognized decrease taxes, them, law permits, doubted." Gregory 293 465, 469, 266, 79 596 (1935). two-way street: "while free organize affairs chooses, nevertheless, once done so, accept choice, not, enjoy route might chosen follow not," Commissioner National Alfalfa Dehydrating Milling Co., 417 134, 149, 94 2129, 40 717 (1974); 148, 2129 (referring established principle accord occurred occurred"); Founders Gen. Corp. Hoey, 300 268, 275, 57 457, 81 639 (1937) ("To taxability depend existed uncertainty"). routes better worse generally Isenbergh, Review: Musings Form Substance Taxation, 49 U. Chi. 859 (1982); rather, thing statute[, 316(a),] intended," Gregory, 266. [8] period Court's decisions Wilcox, 327 404, 66 546, 90 752 (1946) (holding embezzler) James 366 213, 1052, 6 246 (1961) (overruling holding income), routinely "constructive distributions," recipient dividends. Gardner 237 ("While Wilcox safest insure taxed respective label dividends"); 92.2(7), 92-23, [9] violating "[w]illfully [to] mak[e] subscrib[e] statement, document, contains verified penalties perjury, [the taxpayer] believe true material matter." He erred, error conviction, 15-16. unanimous "does prosecution Tarwater, 494, 504 2002); Peters, 153 445, 461 1998) cases), arguable nature character critical violated, [even if] unnecessary," 1 I. Comisky, Feld, Harris, Fraud Evasion 2.03[5], (2007); argue differently stage proceedings, accede working fall together. [10] "A [method exempting taxation] devised." 92-3; (suggesting, receipts correction resulting overtaxation computing loss sold, exchanged, becomes worthless"); Andrews, "Out Earnings Profits": Some Reflections Dividends, 69 Harv. 1403, 1439 (1956) (criticizing concept "[a]s separating capital," suggesting "[d]istributions ought [could] brought within liquidation special provision"). [11] Sometimes these circumstances assume profitable. For 1099-DIV unsure sufficient shareholders, entire reported dividend." http://www.irs.gov/pub/irs-pdf/i1099div.pdf (as visited Feb. 2008, available Clerk file). [12] Another "distribution" (regardless limitation), 1175-1177, content 301(a)'s language capacious enough involved production going forward defense constituted meaning 14, infra, met. Nor dispute profits. 34, 11. [13] See, e.g., ("We shareholders common objectiveto earn profit shareholders. Especially owned alter ego capacity. [B]y passing himself sole pursuit objectives"). note, although "well settled well, "notwithstanding proportion stockholdings." Dellinger 32 1178, 1183, 1959 1087 (1959); (noting complain unequal property, "under ratified distribution"); Crowley Comissioner, 962 1077 (C.A.1 1992); Lengsfield 241 508 (C.A.5 1957); Baird 25 387, 1955 502 (1955); Thielking 53 TCM 746 (1987), 87, 227, P-H Memo TC. [14] including lacked distribution. 53. instead that, suffices "[t]hat stockholder, receive nonstockholder capacity." 57. Government, part, authority Holland 348 121, 75 127, 99 150 (1954) 163-164, that. express just consider general places produce authorized Sandstrom Montana, 442 510, 2450, 61 39 (1979),

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