Court Opinion

ID: 8891365
Source: CourtListenerOpinion
Date Created: 2022-11-26 23:17:41.731598+00
Date Added: 2024-06-11T17:07:14.182540
License: Public Domain

STEPHENSON, Circuit Judge
(dissenting) .
It is my view that James v. United States, 366 U.S. 213, 81 S.Ct. 1052, 6 L. Ed.2d 246 (1961), is controlling in this case. The funds obtained by the bankrupt through the fraudulent scheme perpetrated by its officers constituted taxable income to the corporation.
The Referee in Bankruptcy found:
Unquestionably, as these facts show, the bankrupt was the borrower in a Ponzi-scheme, [footnote omitted] by which money was borrowed by it, from unsuspecting lenders, upon false representations as to its business activity and upon false representations as to its ability to repay the borrowed monies plus interest at the promised rates.
It is abundantly clear that the corporation obtained funds under false pretenses from innocent victims. Under James, this was taxable income. To treat the funds as loans to the corporation and income only to the officers when the funds were diverted to their personal use is to ignore the well-established law that knowledge, intent and acts of corporate officers acting within the scope of their authority are imputable to the corporation. The funds diverted to the private use of the corporate officers may well be regarded as income to them, but first it was income to the corporation. Burger v. United States, 262 F.2d 946, 956 (8th Cir. 1959). The mere fact that the bankrupt corporation realized no real economic benefit from the loans does not alter its tax liability. Moline Properties v. Commissioner, 319 U.S. 436, 63 S.Ct. 1132, 87 L.Ed. 1499 (1943); National Carbide Corp. v. Commissioner, 336 U.S. 422, 69 S.Ct. 726, 93 L.Ed. 779 (1949).
The issue of whether the government’s tax claim should have priority over rights of the victims to recoup their losses is not before us. Admittedly, the results may be harsh. If such is the case, the remedy lies with Congress.