Court Opinion

ID: 8891364
Source: CourtListenerOpinion
Date Created: 2022-11-26 23:17:41.730181+00
Date Added: 2024-06-11T17:07:14.182031
License: Public Domain

ROSS, Circuit Judge
(concurring).
I concur in the result reached by Judge Heaney and in the reasoning he uses to reach that result. I am not convinced, however, that the financial transactions between the bankrupt cor*359poration and the “investors” were actually loans. In my opinion, the funds secured from these individuals were obtained as part of a fraudulent scheme and the principal officers of the bankrupt corporation knew that the “loans” would not be repaid in full, with interest. Under a strict interpretation of James v. United States, 366 U.S. 213, 81 S.Ct. 1052, 6 L.Ed.2d 246 (1961), the money obtained from these “investors” could be considered income to the bankrupt corporation.
James v. United States, supra, was decided by a divided court with five separate opinions. It involved a situation in which an individual embezzled money from his employer and did not report it as income for the purpose of taxation. He was charged in a criminal indictment with willfully attempting to evade income taxes and was convicted. The question of whether the Government should be entitled to its taxes on the embezzled funds even if it meant the victim would not recover was not a direct issue in the case and was not discussed in the majority opinion. However, Justice Black emphasized in his dissent:
[Sjubjecting the embezzled funds to a tax would amount to allowing the United States “a preferential claim for part of the dishonest gain, to the direct loss and detriment of those to Whom it ought to be restored.” Id. at 227, 81 S.Ct. at 1060 (citation omitted).
Perhaps the Supreme Court will reexamine its holding in James v. United States, supra, and refine it in the light of the facts of this case. If it really intended to hold that the Government should be able to assert its claim (for taxes) to the money which has been wrongfully taken from the victims of a fraud, in preference to the claims of the victims, it should have the opportunity to do so in a case which squarely presents the issue. This is such a case.