Source: https://supreme.justia.com/cases/federal/us/552/421/opinion.html
Timestamp: 2016-10-24 12:30:41
Document Index: 579065507

Matched Legal Cases: ['§7201', '§7201', '§301', '§7201', '§7206', '§7201', '§7201', '§371', '§301', '§301', '§301', '§301', '§7206', '§7201', '§7206', '§7206', '§7206', '§7201', '§7201', '§301', '§301']

Boulware v. United States (Opinion by Justice Souter) :: 552 U.S. 421 (2008) :: Justia U.S. Supreme Court Center Log In
“[T]he capstone of [the] system of sanctions … calculated to induce … fulfillment of every duty under the income tax law,” Spies v. United States, 317 U. S. 492, 497 (1943), is 26 U. S. C. §7201, making it a felony willfully to “attemp[t] in any manner to evade or defeat any tax imposed by” the Code.[Footnote 1] One element of tax evasion under §7201 is “the existence of a tax deficiency,” Sansone v. United States, 380 U. S. 343, 351 (1965); see also Lawn v. United States, 355 U. S. 339, 361 (1958),[Footnote 2] which the Government must prove beyond a reasonable doubt, see ibid. (“[O]f course, a conviction upon a charge of attempting to evade assessment of income taxes by the filing of a fraud-
ulent return cannot stand in the absence of proof of a deficiency”).
Not only is Miller devoid of the support claimed for it, but it suffers the demerit of some anomalies of its own. First and most obviously, §§301 and 316 are odd stalks for grafting a contemporaneous intent requirement, given the fact that the correct application of their rules will often become known only at the end of the corporation’s tax year, regardless of the shareholder’s or corporation’s understanding months earlier when a particular distribution may have been made. Section 316(a)(2) conditions treating a distribution as a constructive dividend by reference to earnings and profits, and earnings and profits are to be “computed as of the close of the taxable year … without regard to the amount of the earnings and profits at the time the distribution was made.” A corporation may make a deliberate distribution to a shareholder, with everyone expecting a profitable year and considering the distribution to be a dividend, only to have the shareholder end up liable for no tax if the company closes out its tax year
in the red (so long as the shareholder’s basis covers the distribution); when such facts are clear at the time the reporting forms and returns are filed,[Footnote 11] the shareholder does not violate §7201 by paying no tax on the moneys received, intent being beside the point. And since intent to make a distribution a taxable one cannot control, it would be odd to condition nontaxable return-of-capital treatment on contemporaneous intent, when the statute says nothing about intent at all.
Footnote 1 A related provision, 26 U. S. C. §7206(1), criminalizes the willful filing of a tax return believed to be materially false. See n. 9, infra.
Footnote 2 “[T]he elements of §7201 are willfulness[,] the existence of a tax deficiency, . . . and an affirmative act constituting an evasion or attempted evasion of the tax.” Sansone v. United States, 380 U. S. 343, 351 (1965). The Courts of Appeals have divided over whether the Government must prove the tax deficiency is “substantial,” see United States v. Daniels, 387 F. 3d 636, 640–641, and n. 2 (CA7 2004) (collecting cases); we do not address that issue here.
Footnote 3 Although the Code does not “comprehensively define ‘earnings and profits,’ ” 4 B. Bittker & L. Lokken, Federal Taxation of Income, Estates and Gifts ¶92.1.3, p.92–6 (3d ed. 2003) (hereinafter Bittker & Lokken), the “[p]rovisions of the Code and regulations relating to earnings and profits ordinarily take taxable income as the point of departure,” id., at 92–9.
Footnote 4 The trial at issue in this case was actually Boulware’s second trial on §§7201 and 7206(1) charges, his convictions on those counts in an earlier trial having been vacated by the Ninth Circuit for reasons not at issue here, see 384 F. 3d 794 (2004). In that earlier trial, Boulware was also convicted of conspiracy to make false statements to a federally insured financial institution, in violation of 18 U. S. C. §371. The Ninth Circuit affirmed Boulware’s conspiracy conviction that first time around, however, so the present trial did not include a conspiracy charge.
Footnote 5 Judge Thomas went on to say that the Government would prevail even without Miller’s rule because, in his view, Boulware’s diversions were “unlawful,” and the return-of-capital rules would not apply to diversions made for unlawful purposes. See 470 F. 3d, at 938–939.
Footnote 6 As noted, the Ninth Circuit holds that §§301 and 316(a) are not to be consulted in a criminal tax evasion case until the defendant produces evidence of an intent to treat diverted funds as a return of capital at the time it was made. See 470 F. 3d 931 (2006) (case below). By contrast, the Second Circuit allows a criminal defendant to invoke §§301 and 316(a) without evidence of a contemporaneous intent to treat such moneys as returns of capital. See United States v. Bok, 156 F. 3d 157, 162 (1998) (“[I]n return of capital cases, a taxpayer’s intent is not determinative in defining the taxpayer’s conduct”). Meanwhile, the Third, Sixth, and Eleventh Circuits arguably have taken the position that §§301 and 316(a) are altogether inapplicable in criminal tax cases involving informal distributions. See United States v. Williams, 875 F. 2d 846, 850–852 (CA11 1989); United States v. Goldberg, 330 F. 2d 30, 38 (CA3 1964); Davis v. United States, 226 F. 2d 331, 334–335 (CA6 1955); but see Brief for Petitioner 16 (“[T]hese cases can be read to address the allocation of the burden of proof on the return of capital issue, rather than the applicable substantive principles”).
Footnote 7 We have also recognized that “[t]he legal right of a taxpayer to decrease the amount of what otherwise would be his taxes, or altogether avoid them, by means which the law permits, cannot be doubted.” Gregory v. Helvering, 293 U. S. 465, 469 (1935). The rule is a two-way street: “while a taxpayer is free to organize his affairs as he chooses, nevertheless, once having done so, he must accept the tax consequences of his choice, whether contemplated or not, . . . and may not enjoy the benefit of some other route he might have chosen to follow but did not,” Commissioner v. National Alfalfa Dehydrating & Milling Co., 417 U. S. 134, 149 (1974); see also id., at 148 (referring to “the established tax principle that a transaction is to be given its tax effect in accord with what actually occurred and not in accord with what might have occurred”); Founders Gen. Corp. v. Hoey, 300 U. S. 268, 275 (1937) (“To make the taxability of the transaction depend upon the determination whether there existed an alternative form which the statute did not tax would create burden and uncertainty”). The question here, of course, is not whether alternative routes may have offered better or worse tax consequences, see generally Isenbergh, Review: Musings on Form and Substance in Taxation, 49 U. Chi. L. Rev. 859 (1982); rather, it is “whether what was done … was the thing which the statute[, here §§301 and 316(a),] intended,” Gregory, supra, at 469.
Footnote 8 Thus in the period between this Court’s decisions in Commissioner v. Wilcox, 327 U. S. 404 (1946) (holding embezzled funds to be nontaxable to the embezzler) and James v. United States, 366 U. S. 213 (1961) (overruling Wilcox, holding embezzled funds to be taxable income), the Government routinely argued that diverted funds were “constructive distributions,” taxable to the recipient as dividends. See generally Gardner 237 (“While Wilcox was good law, the safest way to insure that both the corporation and the shareholder would be taxed on their respective gain from the diverted funds was to label them dividends”); 4 Bittker & Lokken ¶92.2(7), p. 92–23, n. 37.
Footnote 9 Boulware was also convicted of violating §7206(1), which makes it a felony “[w]illfully [to] mak[e] and subscrib[e] any return, statement, or other document, which contains or is verified by a written declaration that it is made under the penalties of perjury, and which [the taxpayer] does not believe to be true and correct as to every material matter.” He argues that if the Ninth Circuit erred, its error calls into question not only his §7201 conviction, but his §7206(1) conviction as well. Brief for Petitioner 15–16. Although the Courts of Appeals are unanimous in holding that §7206(1) “does not require the prosecution to prove the existence of a tax deficiency,” United States v. Tarwater, 308 F. 3d 494, 504 (CA6 2002); see also United States v. Peters, 153 F. 3d 445, 461 (CA7 1998) (collecting cases), it is arguable that “the nature and character of the funds received can be critical in determining whether . . . §7206(1) has been violated, [even if] proof of a tax deficiency is unnecessary,” 1 I. Comisky, L. Feld, & S. Harris, Tax Fraud & Evasion ¶2.03[5], p. 21 (2007); see also Brief for Petitioner 15–16. The Government does not argue that Boulware’s §§7201 and 7206(1) convictions should be treated differently at this stage of the proceedings, however, and we will accede to the Government’s working assumption here that the §§7201 and 7206(1) convictions stand or fall together.
Footnote 10 “A better [method of exempting returns of capital from taxation] could no doubt be devised.” 4 Bittker & Lokken ¶92.1.1, p. 92–3; see ibid. (suggesting, for example, that “all receipts from a corporation could be treated as taxable income, and a correction for any resulting overtaxation could be made in computing gain or loss when stock is sold, exchanged, or becomes worthless”); see also Andrews, “Out of its Earnings and Profits”: Some Reflections on the Taxation of Dividends, 69 Harv. L. Rev. 1403, 1439 (1956) (criticizing the earnings and profits concept “[a]s a device for separating income from return of capital,” and suggesting that “[d]istributions which ought to be treated as return of capital [could] be brought within the concept of a partial liquidation by special provision”).
Footnote 11 Sometimes these facts are not clear, and in certain circumstances
a corporation may be required to assume it is profitable. For ex-
ample, the instructions to IRS Form 1099–DIV provide that when a corporation is unsure whether it has sufficient earnings and profits
at the end of the taxable year to cover a distribution to shareholders, “the entire payment must be reported as a dividend.” See http://www.irs.gov/pub/irs-pdf/i1099div.pdf (as visited Feb. 15, 2008, and available in Clerk of Court’s case file).
Footnote 12 Another limiting condition is that the diversion of funds must be a “distribution” in the first place (regardless of the “with respect to stock” limitation), see supra, at 6–8, though the Government is content to assume that §301(a)’s “distribution” language is capacious enough to cover the diversions involved here, and that if Boulware bears the burden of production in going forward with the defense that the funds he received constituted a “distribution” within the meaning of §301(a), see n. 14, infra, that burden has been met. Nor does the Government dispute that Boulware offered sufficient evidence of his basis and HIE’s lack of earnings and profits. See Brief for United States 34, n. 11.
Footnote 13 See, e.g., Truesdell v. Commissioner, IRS Non Docketed Service Advice Review, 1989 WL 1172952 (Mar. 15, 1989) (“We believe a corporation and its shareholders have a common objective—to earn a profit for the corporation to pass onto its shareholders. Especially where the corporation is wholly owned by one shareholder, the corporation becomes the alter ego of the shareholder in his profit making capacity. . . . [B]y passing corporate funds to himself as shareholder, a sole shareholder is acting in pursuit of these common objectives”). We note, however, that although Boulware was not a sole shareholder, the Tax Court has taken it as “well settled that a distribution of corporate earnings to shareholders may constitute a dividend,” and so a return of capital as well, “notwithstanding that it is not in proportion to stockholdings.” Dellinger v. Commissioner, 32 T. C. 1178, 1183 (1959); see ibid. (noting that because other stockholders did not complain when a taxpayer received unequal property, “under the circumstances they must be deemed to have ratified the distribution”); see also Crowley v. Comissioner, 962 F. 2d 1077 (CA1 1992); Lengsfield v. Commissioner, 241 F. 2d 508 (CA5 1957); Baird v. Commissioner, 25 T. C. 387 (1955); Thielking v. Commissioner, 53 TCM 746 (1987), ¶87, 227, P–H Memo TC.
Footnote 14 Boulware does not dispute that he bears the burden of producing some evidence to support his return-of-capital theory, including evidence that the corporation lacked earnings and profits and that he had sufficient basis in his stock to cover the distribution. See Tr. of Oral Arg. 53. He instead argues that, as to the “with respect to … stock” requirement, it suffices to show “[t]hat he is a stockholder, and that he did not receive this money in any nonstockholder capacity.” Id., at 57. The Government, for its part, on the authority of Holland v. United States, 348 U. S. 121 (1954) and Bok, 156 F. 3d, at 163–164, argues that Boulware must offer more evidence than that. We express no view on that issue here, just as we decline to consider the more general question whether the Second Circuit’s rule in Bok, which places on the criminal defendant the burden to produce evidence in support of a return-of-capital theory, is authorized by Holland and consistent with Sandstrom v. Montana, 442 U. S. 510 (1979), and related cases.