U.S. Supreme Court James v. United States, 366
U.S. 213 (1961) James v. United
States No. 63 Argued November 17,
1960 Decided May 15, 1961 366
U.S. 213 CERTIORARI TO THE UNITED STATES
COURT OF APPEALS FOR THE SEVENTH
CIRCUIT Syllabus 1. Embezzled money is taxable income of the embezzler in the
year of the embezzlement under § 22(a) of the Internal Revenue Code
of 1939, which defines "gross income" as including "gains or
profits and income derived from any source whatever," and under §
61(a) of the Internal Revenue Code of 1954, which defines "gross
income" as "all income from whatever source derived." Commissioner v. Wilcox, 327 U. S. 404 ,
overruled. Pp. 366 U. S.
213 -222.

															2. After this Court's decision in Commissioner v. Wilcox,
supra, petitioner embezzled large sums of money during the
years 1951 through 1954. He failed to report those amounts as gross
income in his income tax returns for those years, and he was
convicted of "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. Held: the judgment affirming the conviction is
reversed, and the cause is remanded with directions to dismiss the
indictment. Pp. 366 U. S.
214 -215, 222.

															273 F.2d 5, reversed.

															MR. CHIEF JUSTICE WARREN announced the judgment of the Court and
an opinion in which MR. JUSTICE BRENNAN, and MR. JUSTICE STEWART
concur.

															The issue before us in this case is whether embezzled funds are
to be included in the "gross income" of the embezzler in the year
in which the funds are misappropriated Page 366 U. S. 214 under § 22(a) of the Internal Revenue Code of 1939 [ Footnote 1 ] and § 61(a) of the Internal
Revenue Code of 1954. [ Footnote
2 ]

															The facts are not in dispute. The petitioner is 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.
[ Footnote 3 ] Petitioner failed
to report these amounts in his gross income in those years, and was
convicted 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 [ Footnote 4 ] and § 7201 of the Internal Revenue Page 366 U. S. 215 Code of 1954. [ Footnote 5 ]
He was sentenced to a total of three years' imprisonment. The Court
of Appeals affirmed. 273 F.2d 5. Because of a conflict with this
Court's decision in Commissioner v. Wilcox, 327 U.
S. 404 , a case whose relevant facts are concededly the
same as those in the case now before us, we granted certiorari. 362
U.S. 974.

															In Wilcox, the Court held that embezzled money does not
constitute taxable income to the embezzler in the year of the
embezzlement under § 22(a) of the Internal Revenue Code of 1939.
Six years later, this Court held, in Rutkin v. United
States, 343 U. S. 130 ,
that extorted money does constitutes taxable income to the
extortionist in the year that the money is received under § 22(a)
of the Internal Revenue Code of 1939. In Rutkin, the Court
did not overrule Wilcox, but stated:

															"We do not reach in this case the factual situation involved in Commissioner v. Wilcox, 327 U. S. 404 . We limit that
case to its facts. There, embezzled funds were held not to
constitute taxable income to the embezzler under § 22(a)." Id. at 343 U. S. 138 .
[ Footnote 6 ] However,
examination of the reasoning used in Rutkin leads us
inescapably to the conclusion that Wilcox was thoroughly
devitalized.

															The basis for the Wilcox decision was

															"that a taxable gain is conditioned upon (1) the presence of a
claim of right to the alleged gain and (2) the absence of a
definite, Page 366 U. S. 216 unconditional obligation to repay or return that which would
otherwise constitute a gain. Without some bona fide legal
or equitable claim, even though it be contingent or contested in
nature, the taxpayer cannot be said to have received any gain or
profit within the reach of Section 22(a)." Commissioner v. Wilcox, supra, at 327 U. S. 408 .
Since Wilcox embezzled the money, held it "without any semblance of
a bona fide claim of right," ibid., and therefore
"was at all times under an unqualified duty and obligation to repay
the money to his employer," ibid., the Court found that
the money embezzled was not includible within "gross income." But
Rutkin's legal claim was no greater than that of Wilcox. It was
specifically found "that petitioner had no basis for his claim . .
. and that he obtained it by extortion." Rutkin v. United
States, supra, at 343 U. S. 135 .
Both Wilcox and Rutkin obtained the money by means of a criminal
act; neither had a bona fide claim of right to the funds.
[ Footnote 7 ] Nor was Rutkin's
obligation to repay the extorted money to the victim any less than
that of Wilcox. The victim of an extortion, like the victim of an
embezzlement, has a right to restitution. Furthermore, it is
inconsequential that an embezzler may lack title to the sums he
appropriates, while an extortionist may gain a voidable title.
Questions of federal income taxation are not determined by such
"attenuated subtleties." Lucas v. Earl, 281 U.
S. 111 , 281 U. S. 114 ; Corliss
v. Page 366 U. S. 217 Bowers, 281 U. S. 376 , 281 U. S. 378 .
Thus, the fact that Rutkin secured the money with the consent of
his victim, Rutkin v. United States, supra, at p. 343 U. S. 138 ,
is irrelevant. Likewise unimportant is the fact that the sufferer
of an extortion is less likely to seek restitution than one whose
funds are embezzled. What is important is that the right to
recoupment exists in both situations.

															Examination of the relevant cases in the courts of appeals lends
credence to our conclusion that the Wilcox rationale was
effectively vitiated by this Court's decision in Rutkin. [ Footnote 8 ] Although this case
appears to be the first to arise that is "on all fours" with Wilcox, the lower federal courts, in deference to the
undisturbed Wilcox holding, have earnestly endeavored to
find distinguishing facts in the cases before them which would
enable them to include sundry unlawful gains within "gross income."
[ Footnote 9 ] Page 366 U. S. 218 It had been a well established principle, long before either Rutkin or Wilcox, that unlawful, as well as
lawful, gains are comprehended within the term "gross income."
Section II B of the Income Tax Act of 1913 provided that

															"the net income of a taxable person shall include gains,
profits, and income . . . from . . . the transaction of any lawful business carried on for gain or profit, or gains or
profits and income derived from any source whatever. . . ."

															(Emphasis supplied.) 38 Stat. 167. When the statute was amended
in 1916, the one word "lawful" was omitted. This revealed, we
think, the obvious intent of that Congress to tax income derived
from both legal and illegal sources, to remove the incongruity of
having the gains of the honest laborer taxed and the gains of the
dishonest immune. Rutkin v. United States, supra, at 343 U. S. 138 ; United States v. Sullivan, 274 U.
S. 259 , 274 U. S. 263 .
Thereafter, the Court held that gains from illicit traffic in
liquor are includible within "gross income." Ibid. See
also Johnson v. United States, 318 U.
S. 189 ; United States v. Johnson, 319 U.
S. 503 . And, the Court has pointed out, with approval,
that there "has been a widespread and settled administrative and
judicial recognition of the taxability of unlawful gains of many
kinds," Rutkin v. United States, supra, at 343 U. S. 137 .
These include protection payments made to racketeers, ransom
payments paid to kidnappers, bribes, money derived from the sale of
unlawful insurance policies, graft, black market gains, funds
obtained from the operation of lotteries, income from race track
bookmaking and illegal prize fight pictures. Ibid. The starting point in all cases dealing with the question of the
scope of what is included in "gross income" begins with the basic
premise that the purpose of Congress was "to use the full measure
of its taxing power." Helvering Page 366 U. S. 219 v. Clifford, 309 U. S. 331 , 309 U. S. 334 .
And the Court has given a liberal construction to the broad
phraseology of the "gross income" definition statutes in
recognition of the intention of Congress to tax all gains except
those specifically exempted. Commissioner v. Jacobson, 336 U. S. 28 , 336 U. S. 49 ; Helvering v. Stockholms Enskilda Bank, 293 U. S.
84 , 293 U. S. 87 -91.
The language of § 22(a) of the 1939 Code, "gains or profits and
income derived from any source whatever," and the more simplified
language of § 61(a) of the 1954 Code, "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." Commissioner v. Glenshaw Glass Co., 348 U. S. 426 , 348 U. S. 431 .
A gain

															"constitutes taxable income when its recipient has such control
over it that, as a practical matter, he derives readily realizable
economic value from it." Rutkin v. United States, supra, at 343 U. S. 137 .
Under these broad principles, we believe that petitioner's
contention, that all unlawful gains are taxable except those
resulting from embezzlement, should fail.

															When a taxpayer acquires earnings, lawfully or unlawfully,
without the consensual recognition, express or implied, of an
obligation to repay and without restriction as to their
disposition,

															"he has received income which he is required to return, even
though it may still be claimed that he is not entitled to retain
the money, and even though he may still be adjudged liable to
restore its equivalent." North American Oil Consolidated v. Burnet, supra, at 286 U. S. 424 . In
such case, the taxpayer has "actual command over the property
taxed-the actual benefit for which the tax is paid," Corliss v.
Bowers, supra. This standard brings wrongful appropriations
within the broad sweep of "gross income;" it excludes loans. When a
law-abiding taxpayer mistakenly receives income in one year, which
receipt is assailed and found to be invalid in a subsequent Page 366 U. S. 220 year, the taxpayer must nonetheless report the amount as "gross
income" in the year received. United States v. Lewis, supra;
Healy v. Commissioner, supra. We do not believe that Congress
intended to treat a lawbreaking taxpayer differently. Just as the
honest taxpayer may deduct any amount repaid in the year in which
the repayment is made, the Government points out that "If, when,
and to the extent that the victim recovers back the misappropriated
funds, there is, of course, a reduction in the embezzler's income."
Brief for the United States, p. 24. [ Footnote 10 ]

															Petitioner contends that the Wilcox rule has been in
existence since 1946; that, if Congress had intended to change the
rule, it would have done so; that there was a general revision of
the income tax laws in 1954 without mention of the rule; that a
bill to change it [ Footnote
11 ] was introduced in the Eighty-sixth Congress, but was not
acted upon; that therefore we may not change the rule now. But the
fact that Congress has remained silent or has reenacted a statute
which we have construed, or that congressional attempts to amend a
rule announced by this Court have failed, does not necessarily
debar us from reexamining and correcting the Court's own errors. Girouard v. United States, 328 U. S.
61 , 328 U. S. 69 -70; Helvering v. Hallock, 309 U. S. 106 , 309 U. S.
119 -122. There may have been any number of reasons why
Congress acted as it did. Helvering v. Hallock, supra. One
of the reasons could well � 8
and S. 221� be our subsequent decision in Rutkin which
has been thought by many to have repudiated Wilcox. Particularly might this be true in light of the decisions of the
Courts of Appeals which have been riding a narrow rail between the
two cases and further distinguishing them to the disparagement of Wilcox. See notes 8 and | 8 and S.
213fn9|>9, supra. We believe that Wilcox was wrongly decided, and we find
nothing in congressional history since then to persuade us that
Congress intended to legislate the rule. Thus, we believe that we
should now correct the error and the confusion resulting from it,
certainly if we do so in a manner that will not prejudice those who
might have relied on it. Cf. Helvering v. Hallock, supra, at 309 U. S. 119 .
We should not continue to confound confusion, particularly when the
result would be to perpetuate the injustice of relieving embezzlers
of the duty of paying income taxes on the money they enrich
themselves with through theft while honest people pay their taxes
on every conceivable type of income.

															But we are dealing here with a felony conviction under statutes
which apply to any person who "willfully" fails to account for his
tax or who "willfully" attempts to evade his obligation. In Spies v. United States, 317 U. S. 492 , 317 U. S. 499 ,
the Court said that § 145(b) of the 1939 Code embodied "the gravest
of offenses against the revenues," and stated that willfulness must
therefore include an evil motive and want of justification in view
of all the circumstances. Id. at 317 U. S. 498 .
Willfulness

															"involves a specific intent which must be proven by independent
evidence, and which cannot be inferred from the mere understatement
of income." Holland v. United States, 348 U.
S. 121 , 348 U. S.
139 .

															We believe that the element of willfulness could not be proven
in a criminal prosecution for failing to include embezzled funds in
gross income in the year of misappropriation so long as the statute
contained the gloss placed upon it by Wilcox at the time
the alleged crime was Page 366 U. S. 222 committed. Therefore, we feel that petitioner's conviction may
not stand, and that the indictment against him must be
dismissed.

															Since MR. JUSTICE HARLAN, MR. JUSTICE FRANKFURTER, and MR.
JUSTICE CLARK agree with us concerning Wilcox, that case
is overruled. MR. JUSTICE BLACK, MR. JUSTICE DOUGLAS, and MR.
JUSTICE WHITTAKER believe that petitioner's conviction must be
reversed and the case dismissed for the reasons stated in their
opinions.

															Accordingly, the judgment of the Court of Appeals is reversed,
and the case is remanded to the District Court with directions to
dismiss the indictment. It is so ordered. [ Footnote 1 ]

															"§ 22. GROSS INCOME."

															"(a) General definitions. -- 'Gross income' includes
gains, profits, and income derived from salaries, wages, or
compensation for personal service . . . of whatever kind and in
whatever form paid, or from professions, vocations, trades,
businesses, commerce, or sales, or dealings in property, whether
real or personal, growing out of the ownership or use of or
interest in such property; also from interest, rent, dividends,
securities, or the transaction of any business carried on for gain
or profit, or gains or profits and income derived from any source
whatever. . . ."

															(26 U.S.C. (1952 ed.) § 22(a).)

															[ Footnote 2 ]

															"§ 61. Gross Income Defined."

															"(a) General Definition. -- Except as otherwise
provided in this subtitle, gross income means all income from
whatever source derived. . . ."

															(26 U.S.C. § 61(a).)

															[ Footnote 3 ]

															Petitioner has pleaded guilty to the offense of conspiracy to
embezzle in the Court of Essex County, New Jersey.

															[ Footnote 4 ]

															"§ 145. Penalties."

															" * * * *" "(b) Failure to Collect and Pay Over Tax, or Attempt to
Defeat or Evade Tax . -- Any person required under this chapter
to collect, account for, and pay over any tax imposed by this
chapter, who willfully fails to collect or truthfully account for
and pay over such tax, and any person who willfully attempts in any
manner to evade or defeat any tax imposed by this chapter or the
payment thereof, shall, in addition to other penalties provided by
law, be guilty of a felony and, upon conviction thereof, be fined
not more than $10,000 or imprisoned for not more than five years,
or both, together with the costs of prosecution."

															(26 U.S.C. (1952 ed.) § 145(b).)

															[ Footnote 5 ]

															"§ 7201. Attempt to Evade or Defeat Tax."

															"Any person who willfully attempts in any manner to evade or
defeat any tax imposed by this title or the payment thereof shall,
in addition to other penalties provided by law, be guilty of a
felony and, upon conviction thereof, shall be fined not more than
$10,000, or imprisoned not more than 5 years, or both, together
with the costs of prosecution."

															26 U.S.C. § 7201.

															[ Footnote 6 ]

															The dissenters in Rutkin stated that the Court had
rejected the Wilcox interpretation of § 22(a). Id. at 343 U. S.
140 .

															[ Footnote 7 ]

															The Government contends that the adoption in Wilcox of
a claim of right test as a touchstone of taxability had no support
in the prior cases of this Court; that the claim of right test was
a doctrine invoked by the Court in aid of the concept of annual
accounting, to determine when, not whether, receipts constituted
income. See North American Oil Consolidated v. Burnet, 286 U. S. 417 ; United States v. Lewis, 340 U. S. 590 ; Healy v. Commissioner, 345 U. S. 278 . In
view of our reasoning set forth below, we need not pass on this
contention. The use to which we put the claim of right test here is
only to demonstrate that, whatever its validity as a test of
whether certain receipts constitute income, it calls for no
distinction between Wilcox and Rutkin. [ Footnote 8 ]

															In Marienfeld v. United States, 214 F.2d 632, the
Eighth Circuit stated, "We find it difficult to reconcile the Wilcox case with the later opinion of the Supreme Court in Rutkin. . . ." Id. at 636. The Second Circuit
announced, in United States v. Bruswitz, 219 F.2d 59, "It
is difficult to perceive what, if anything, is left of the Wilcox holding after Rutkin. . . ." Id. at 61. The Seventh Circuit's prior decision in Macias v.
Commissioner, 255 F.2d 23, observed,

															"If this reasoning [of Rutkin ] had been employed in Wilcox, we see no escape from the conclusion that the
decision in that case would have been different. In our view, the
Court in Rutkin repudiated its holding in Wilcox; certainly it repudiated the reasoning by which the result was
reached in that case." Id. at 26.

															[ Footnote 9 ]

															For example, Kann v. Commissioner, 210 F.2d 247, was
differentiated on the following grounds: the taxpayer was never
indicted or convicted of embezzlement; there was no adequate proof
that the victim did not forgive the misappropriation; the taxpayer
was financially able to both pay the income tax and make
restitution; the taxpayer would have likely received most of the
misappropriated money as dividends. In Marienfeld v. United
States, supra, the court believed that the victim was not
likely to repudiate. In United States v. Wyss, 239 F.2d
658, the distinguishing factors were that the district judge had
not found as a fact that the taxpayer embezzled the funds, and the
money had not as yet been reclaimed by the victim. See also
Briggs v. United States, 214 F.2d 699, 702; Prokop v.
Commissioner, 254 F.2d 544, 554-555. Cf. J. J. Dix, Inc.
v. Commissioner, 223 F.2d 436.

															[ Footnote 10 ]

															Petitioner urges upon us the case of Alison v. United
States, 344 U. S. 167 . But
that case dealt with the right of the victim of an embezzlement to
take a deduction, under § 23(e) and (f) of the 1939 Code, in the
year of the discovery of the embezzlement, rather than the year in
which the embezzlement occurred. The Court held only

															"that the special factual circumstances found by the District
Courts in both these cases justify deductions under I.R.C., § 23(e)
and (f) and the longstanding Treasury Regulations applicable to
embezzlement losses." Id. at 344 U. S. 170 .
The question of inclusion of embezzled funds in "gross income" was
not presented in Alison. [ Footnote 11 ]

															H.R. 8854, 86th Cong., 1st Sess.

															MR. JUSTICE BLACK, whom MR. JUSTICE DOUGLAS joins, concurring in
part and dissenting in part.

															On February 25, 1946, fifteen years ago, this Court, after
mature consideration, and in accordance with what at that time
represented the most strongly supported judicial view, held, in an
opinion written by Mr. Justice Murphy to which only one Justice
dissented, that money secretly taken by an embezzler for his own
use did not constitute a taxable gain to him under the federal
income tax laws. Commissioner v. Wilcox, 327 U.
S. 404 . The Treasury Department promptly accepted this
ruling in a bulletin declaring that the "mere act of embezzlement
does not, of itself, result in taxable income," although properly
urging that "taxable income may result to the embezzler depending
on the facts in the particular case." [ Footnote 2/1 ] Page 366 U. S. 223 During the fifteen years since Wilcox was decided, both
this Court and Congress, although urged to do so, have declined to
change the Wilcox interpretation of statutory "income"
with respect to embezzlement. In this case, however, a majority of
the Court overrules Wilcox. Only three of the members of
the Court who decided the Wilcox case are participating in
this case -- MR. JUSTICE FRANKFURTER, MR. JUSTICE DOUGLAS, and
myself. MR. JUSTICE DOUGLAS and I dissent from the Court's action
in "overruling" Wilcox and from the prospective way in
which this is done. We think Wilcox was sound when
written, and is sound now. I We dissent from the way the majority of the Court overrules Wilcox. If the statutory interpretation of "taxable
income" in Wilcox is wrong, then James is guilty of
violating the tax evasion statute, for the trial court's judgment
establishes that he embezzled funds and willfully refrained from
reporting them as income. It appears to us that District Courts are
bound to be confused as to what they can do hereafter in tax
evasion cases involving "income" from embezzlements committed prior
to this day. Three Justices vote to overrule Wilcox under
what we believe to be a questionable formula, at least a new one in
the annals of this Court, and say that, although failure to report
embezzled funds has, despite Wilcox, always been a crime
under the statute, people who have violated this law in the past
cannot be prosecuted, but people who embezzle funds after this
opinion is announced can be prosecuted for failing to report these
funds as a "taxable gain." Three other Justices who vote to
overrule Wilcox say that past embezzlers can be prosecuted
for the crime of tax evasion, although two of those Justices
believe the Government must prove that the past embezzler did not
commit his crime in reliance on Wilcox. Page 366 U. S. 224 Thus, although it was not the law yesterday, it will be the law
tomorrow that funds embezzled hereafter are taxable income; and
although past embezzlers could not have been prosecuted yesterday,
maybe they can and maybe they cannot be prosecuted tomorrow for the
crime of tax evasion. (The question of the civil tax liability of
past embezzlers is left equally unclear.) We do not challenge the
wisdom of those of our Brethren who refuse to make the Court's new
tax evasion crime applicable to past conduct. This would be good
governmental policy even though the ex post facto provision of the Constitution has not ordinarily been thought to
apply to judicial legislation. Our trouble with this aspect of the
Court's action is that it seems to us to indicate that the Court
has passed beyond the interpretation of the tax statute and
proceeded substantially to amend it.

															We realize that there is a doctrine with wide support to the
effect that ,under some circumstances, courts should make their
decisions as to what the law is apply only prospectively. [ Footnote 2/2 ] Objections to such a judicial
procedure, however, seem to us to have peculiar force in the field
of criminal law. In the first place, a criminal statute that is so
ambiguous in scope that an interpretation of it brings about
totally unexpected results, thereby subjecting people to penalties
and punishments for conduct which they could not know was criminal
under existing law, raises serious questions of unconstitutional
vagueness. [ Footnote 2/3 ] Moreover,
for a court to interpret a criminal statute in such a way as to
make punishment for past conduct under it so unfair and unjust that
the interpretation should be given only prospective application
seems to us to be the creation of a judicial crime that Congress
might not want Page 366 U. S. 225 to create. This country has never been sympathetic with
judge-created crimes. Their rejection under our Constitution was
said to have been "long since settled in public opinion" even as
early as 1812, when the question first reached this Court in United States v. Hudson &
Goodwin , 7 Cranch 32. In that case, this Court
emphatically declared that the federal courts have no common law
jurisdiction in criminal cases. They are not "vested with
jurisdiction over any particular act done by an individual in
supposed violation of the peace and dignity of the sovereign
power." Rather,

															"[t]he legislative authority of the Union must first make an act
a crime, affix a punishment to it, and declare the Court that shall
have jurisdiction of the offence. [ Footnote 2/4 ]"

															In our judgment, one of the great inherent restraints upon this
Court's departure from the field of interpretation to enter that of
lawmaking has been the fact that its judgments could not be limited
to prospective application. This Court, and, in fact, all
departments of the Government, have always heretofore realized that
prospective lawmaking is the function of Congress, rather than of
the courts. We continue to think that this function should be
exercised only by Congress under the constitutional system. II We think Wilcox was right when it was decided, and is
right now. It announced no new, novel doctrine. One need only look
at the Government's briefs in this Court in the Wilcox case to see just how little past judicial support could then be
mustered had the Government sought to send Wilcox to jail for his
embezzlement under the guise of a tax evasion prosecution. The
Government did cite many cases from many courts saying that, under
the federal income tax law, gains are no less taxable because Page 366 U. S. 226 they have been acquired by illegal methods. This Court had
properly held long before Wilcox that there is no "reason
why the fact that a business is unlawful should exempt it from
paying the taxes that, if lawful, it would have to pay." [ Footnote 2/5 ] We fully recognize the
correctness of that holding in Wilcox: "Moral turpitude is not a touchstone of taxability. The
question, rather, is whether the taxpayer in fact received a
statutory gain, profit or benefit. That the taxpayer's motive may
have been reprehensible or the mode of receipt illegal has no
bearing upon the application of Section 22(a). [ Footnote 2/6 ]"

															The Court today by implication attributes quite a different
meaning or consequence to the Wilcox opinion. One opinion
argues at length the "well established principle . . . that
unlawful, as well as lawful, gains are comprehended within the term gross income.'" Wilcox did not deny that; we do not
deny that. This repeated theme of our Brethren is wholly
irrelevant, since the Wilcox holding in no way violates
the sound principle of treating "gains" of honest and dishonest
taxpayers alike. The whole basis of the Wilcox opinion was
that an embezzlement is not in itself "gain" or "income" to the
embezzler within the tax sense, for the obvious reason that the
embezzled property still belongs, and is known to belong, to the
rightful owner. It is thus a mistake to argue that petitioner's
contention is "that all unlawful gains are taxable except those
resulting from embezzlement." As stated in Wilcox, that case was brought to us
because of a conflict among the Circuits. The Ninth Circuit in Wilcox had held that embezzled funds were not any more
"taxable income" to the embezzler than Page 366 U. S. 227 borrowed funds would have been. [ Footnote 2/7 ] The Fifth Circuit, in McKnight v.
Commissioner, had decided the same thing. [ Footnote 2/8 ] The Eighth Circuit, however, had
decided in Kurrle v. Helvering that embezzled funds were
taxable income. [ Footnote 2/9 ]
Comparison of the three opinions readily shows that the arguments
of the Fifth and Ninth Circuits against taxability of such funds
were much stronger than the arguments of the Eighth Circuit for
such taxability. The whole picture can best to obtained from the
court's opinion in McKnight v. Commissioner, written by
Judge Sibley, one of the ablest circuit judges of his time. He
recognized that the taxpayer could not rely upon the unlawfulness
of his business to defeat taxation if he had made a "gain" in that
business. He pointed out, however, that the ordinary embezzler

															"got no title, void or voidable, to what he took. He was still
in possession as he was before, but with a changed purpose. He
still had no right nor color of right. He claimed none. [ Footnote 2/10 ]"

															Judge Silbley's opinion went on to point out that the

															"first takings [of an embezzler] are, indeed, nearly always with
the intention of repaying, a sort of unauthorized borrowing. It
must be conceded that no gain is realized by borrowing, because of
the offsetting obligation. [ Footnote
2/11 ]"

															Approaching the matter from a practical standpoint, Judge Sibley
also explained that subjecting 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." [ Footnote 2/12 ] He was not willing to put the owner
of Page 366 U. S. 228 funds that had been stolen in competition with the United States
Treasury Department as to which one should have a preference to get
those funds.

															It seems to us that Judge Sibley's argument was then, and is
now, unanswerable. The rightful owner who has entrusted his funds
to an employee or agent has troubles enough when those funds are
embezzled, without having the Federal Government step in with its
powerful claim that the embezzlement is a taxable event
automatically subjecting part of those funds (still belonging to
the owner) to the waiting hands of the Government's tax gatherer.
We say part of the owner's funds because it is on the supposed
"gain" from them that the embezzler is now held to be duty-bound to
pay the tax, and history probably records few instances of
independently wealthy embezzlers who have had nonstolen assets
available for payment of taxes.

															There has been nothing shown to us on any of the occasions when
we have considered this problem to indicate that Congress ever
intended its income tax laws to be construed as imposing what is in
effect a property or excise tax on the rightful owner's embezzled
funds, for which the owner has already once paid income tax when he
rightfully acquired them. In our view, the Court today does
Congress a grave injustice by assuming that it has imposed this
double tax burden upon the victim of an embezzlement merely because
someone has stolen his money, particularly when Congress has
refused requests that it do so. The owner whose funds have been
embezzled has done nothing but entrust an agent with possession of
his funds for limited purposes, as many of us have frequent
occasion to do in the course of business or personal affairs.
Ordinarily the owner is not, and has no reason to be, at all aware
of an embezzlement until long after the first misuse occurs. If
Congress ever did manifest an intention to select the mere fact of
embezzlement Page 366 U. S. 229 as the basis for imposing a double tax on the owner, we think a
serious question of confiscation in violation of the Fifth
Amendment would be raised. All of us know that, with the strong
lien provisions of the federal income tax law, an owner of stolen
funds would have a very rocky road to travel before he got back,
without paying a good slice to the Federal Government, such funds
as an embezzler who had not paid the tax might, perchance, not have
dissipated. An illustration of what this could mean to a defrauded
employer is shown in this very case by the employer's loss of some
$700,000, upon which the Government claims a tax of $559,000.

															It seems to be implied that one reason for overruling Wilcox is that a failure to hold embezzled funds taxable
would somehow work havoc with the public revenue or discriminate
against "honest" taxpayers and force them to pay more taxes. We
believe it would be impossible to substantiate either claim.
Embezzlers ordinarily are not rich people against whom judgments,
even federal tax judgments, can be enforced. Judging from the
meager settlements that those defrauded were apparently compelled
to make with the embezzlers in this very case, it is hard to
imagine that the Treasury will be able to collect the more than
$500,000 it claims. And certainly the Wilcox case does not
seem to have been one in which the Government could have collected
any great amount of tax. The employer's embezzled $11,000 there
went up in gambling houses. The scarcity of cases involving alleged
taxes due from embezzlers is another indication that the Government
cannot expect to make up any treasury deficits with taxes collected
from embezzlers and thieves, especially when the cost to the
Government of investigations and court proceedings against
suspected individuals is considered. And, as already indicated, to
the extent that the Government could be successful in collecting
some taxes from Page 366 U. S. 230 embezzlers, it would most likely do so at the expense of the
owner whose money had been stolen.

															It follows that, except for the possible adverse effect on
rightful owners, the only substantial result that one can foresee
from today's holding is that the Federal Government will, under the
guise of a tax evasion charge, prosecute people for a simple
embezzlement. But the Constitution grants power to Congress to get
revenue, not to prosecute local crimes. And if there is any offense
which, under our dual system of government, is a purely local one
which the States should handle, it is embezzlement or theft. The
Federal Government stands to lose much money by trying to take over
prosecution of this type of local offense. It is very doubtful
whether the further congestion of federal court dockets to try such
local offenses is good for the Nation, the States or the people.
Here, the embezzler has already pleaded guilty to the crime of
embezzlement in a state court, although the record does not show
what punishment he has received. Were it not for the novel formula
of applying the Court's new law prospectively, petitioner would
have to serve three years in federal prison in addition to his
state sentence. This graphically illustrates one of the great
dangers of opening up the federal tax statutes, or any others, for
use by federal prosecutors against defendants who not only can be
but are tried for their crimes in local state courts and punished
there. If the people of this country are to be subjected to such
double jeopardy and double punishment, despite the constitutional
command against double jeopardy, it seems to us it would be far
wiser for this Court to wait and let Congress attempt to do it. III The Wilcox case was decided fifteen years ago. Congress
has met every year since then. All of us know that the House and
Senate Committees responsible for our Page 366 U. S. 231 tax laws keep a close watch on judicial rulings interpreting the
Internal Revenue Code. Each committee has one or more experts at
its constant disposal. It cannot possibly be denied that these
committees and these experts are, and have been, fully familiar
with the Wilcox holding. When Congress is dissatisfied
with a tax decision of this Court, it can and frequently does act
very quickly to overturn it. [ Footnote 2/13 ] On one occasion, such an overruling
enactment was passed by both the House and Senate and signed by the
President all within one day after the decision was rendered by
this Court. [ Footnote 2/14 ] In
1954, Congress, after extended study, completely overhauled and
recodified the Internal Revenue Code. The Wilcox holding
was left intact. In the Eighty-sixth Congress, and in the present
Eighty-seventh Congress, bills have been introduced to subject
embezzled funds to income taxation. [ Footnote 2/15 ] They have not been passed. This is not
an instance when we can say that Congress may have neglected to
change the law because it did not know what Page 366 U. S. 232 was going on in the courts or because it was not asked to do so,
as was the case in Helvering v. Hallock. [ Footnote 2/16 ] Nor is this a case in which
subsequent affirmative congressional action manifested a view
inconsistent with our prior decision, as was true in Girouard
v. United States. [ Footnote
2/17 ] What we have here, instead, is a case in which Congress
has not passed bills that have been introduced to make embezzled
funds taxable and thereby make failure to report them as income a
federal crime. For this Court to hold under such circumstances that
the inherent ambiguity of legislative inaction gives the Court
license to repudiate the longstanding interpretation of the income
tax statute, and thereby bring additional conduct within the tax
evasion criminal statute, seems to us to be flagrantly violative of
the almost universally accepted axiom that criminal statutes are
narrowly and strictly construed. Our Brethren cite no precedent in
which this or any other court in the English-speaking world has so
deliberately overruled a longstanding prior interpretation of a
statute in order to create a crime which up to that time did not
exist.

															This Court, as well as Congress, was fully apprised of the
various criticisms made in some Courts of Appeals opinions and
elsewhere against the Wilcox holding, yet it has likewise,
until today, steadfastly refused to overrule that holding during
these fifteen years. This has been in the face of the fact that the
Government expressly urged that we do so in 1955, nine years after Wilcox was decided Page 366 U. S. 233 and three years after the decision in Rutkin v. United
States, 343 U. S. 130 . On
that occasion, the Court of Appeals for the Second Circuit,
speaking through Judge Frank for himself and Judge Medina, had held
in the case of J. J. Dix, Inc. v. Commissioner that
embezzled funds were not taxable as income, relying wholly on the Wilcox decision. [ Footnote
2/18 ] Judge Hincks dissented, saying that, if the facts of Dix were not enough to distinguish it from Wilcox, he would not follow Wilcox. In urging us
to grant certiorari, the Government said that the case presented a
recurring problem in the administration of the income tax laws. One
of the arguments the Government presented for overruling Wilcox, strange as it may seem, was that

															"[s]everal prosecutions have recently been authorized and are
now pending in various District Courts, even though the disputed
income in those cases apparently came from embezzlements or closely
analogous crimes. [ Footnote
2/19 ]"

															And the next to the last sentence of its petition was:

															"In short, the question whether the proceeds of embezzlement,
unlike other illegal income, are to enjoy a preferred tax-exempt
status will continue to perplex the lower courts until it is
settled by this Court. [ Footnote
2/20 ]"

															We denied certiorari. [ Footnote
2/21 ] There is surely less reason to repudiate and "devitalize" Wilcox now, six years after the Court, as composed at that
time, refused to overrule it.

															Of course, the rule of stare decisis is not and should
not be an inexorable one. This is particularly true with reference
to constitutional decisions involving determinations beyond the
power of Congress to change, but Congress can and does change
statutory interpretations. It Page 366 U. S. 234 is perfectly proper and right that it should do so when it
believes that this Court's interpretation of a statute embodies a
policy that Congress is against. But Congress has not taken
favorable action on bills introduced to overturn our Wilcox holding even after we declined the Government's
request to reverse the identical holding in Dix, the
latter having occurred three years after the decision in Rutkin which our Brethren now say may have misled Congress
into thinking that we had repudiated the Wilcox holding.

															It seems to us that we gave the doctrine of stare
decisis its proper scope in our treatment of this Court's
decision in Federal Baseball Club v. National League of
Professional Baseball Clubs, 259 U. S. 200 . In
that case, this Court had held, for reasons given, that
professional baseball was not covered by the antitrust acts.
Congress was asked through the years to change the law in this
respect, but declined to do so. In Toolson v. New York Yankees,
Inc., 346 U. S. 356 , we
followed the holding of that case without reexamination of the
underlying issues

															"so far as that decision determines that Congress had no
intention of including the business of baseball within the scope of
the federal antitrust laws."

															Later, we were asked to extend the Federal Baseball case and to hold that the business of boxing could not, without
congressional action, be brought within the antitrust laws. We
emphatically declined to do so in United States v.
International Boxing Club, 348 U. S. 236 , nor
did we overrule Toolson in that case, despite strong
arguments that the reasoning of the Court in the first baseball
case was equally applicable to the business of boxing. We said
about the proposed exemption of boxing from the antitrust laws that
"[t]heir remedy, if they are entitled to one, lies in further
resort to Congress." [ Footnote
2/22 ] That case and that statement fit this case precisely. In
fact, as we are about to explain, a Page 366 U. S. 235 far more meaningful distinction can be made between embezzlement
and extortion for purposes of this case than it was possible to
make between baseball and boxing for purposes of that case, as MR.
JUSTICE FRANKFURTER's dissenting opinion in that case
demonstrates.

															If the Government wants to prosecute the local crime of
embezzlement, ostensibly because of "tax evasion," it seems clear
to us that it should take its request to Congress, which has power
to pass on it and which has, to date, refused to do what the
Government asks us to do in this case. IV Our Brethren advance as a reason for overruling Wilcox the 1952 decision in Rutkin v. United States, which was
decided three years before we denied certiorari in the Dix case. They say that "the reasoning used in Rutkin leads us
inescapably to the conclusion that Wilcox was thoroughly
devitalized." This follows, to some extent, the statement in the
Government's brief that

															" Wilcox and Rutkin cannot be reconciled on the
basis of asserted technical differences between the extortionist
and the embezzler. . . . The proper course, we submit, . . . is to
recognize that the Wilcox rationale was rejected in Rutkin, is unsound, and can no longer be regarded as
having vitality. Embezzled funds represent taxable gains. [ Footnote 2/23 ]"

															There is no doubt that some of the reasoning in the Rutkin opinion rejected some of the reasoning in the Wilcox opinion. But this it true only with respect to the
broad general standards formulated in the two cases, and such
standards, of course, cannot be accepted as universal panaceas to
be mechanically applied to solve all the concrete problems in cases
like these. Moreover, the Rutkin opinion expressly
purported not to overrule Wilcox and Page 366 U. S. 236 specifically said that Wilcox was still to govern cases
fitting its facts, clearly meaning embezzlement cases. [ Footnote 2/24 ] And the Government had not
asked in Rutkin that Wilcox be overruled. Its
argument was that Wilcox was "inapplicable" to the facts
in the Rutkin record. The Government's brief went on to
emphasize that the record in Wilcox showed only the bare
receipt of money wholly belonging to another, while Rutkin had
received the money "as a result of a bilateral agreement" and, as
the Court of Appeals had pointed out,

															"with a 'semblance of a bona fide claim of right,' a
conclusion fully substantiated by the testimony of both the
petitioner and the Government witness Reinfeld. [ Footnote 2/25 ]"

															The Government went on to distinguish Rutkin further by
pointing out that there was "not the slightest hint in the record"
that Rutkin ever had an obligation to repay the funds he took.

															After this Court was persuaded by the Government in Rutkin to accept its distinctions between Rutkin and Wilcox, it seems rather odd to have the Government now
contend that the two cases are irreconcilable. While we disagreed,
we can understand why the majority in Rutkin Page 366 U. S. 237 drew the distinctions it did. Although the victim of either
embezzlement or extortion ordinarily has a legal right to
restitution, the extortion victim, like a blackmail victim, can in
a sense be charged with complicity in bringing about the taxable
event in that he knowingly surrendered the funds to the
extortionist, sometimes in payment of an actual obligation. Unlike
the victim of an ordinary theft, he generally knows who has taken
the property from him, and he consents to the taking though under
duress; and unlike most victims of embezzlement, he is able to
report the taking to law enforcement officers during the taxable
year, and his failure to do so might be considered a kind of
continuing consent to the extortionist's dominion over the
property. The longer he acquiesces, the less likely it becomes that
the extortion victim ever will demand restitution; [ Footnote 2/26 ] but once the victim of an
embezzlement finds out that his property has been stolen, he most
likely will immediately make efforts to get it back. Thus, although
we still think Rutkin was wrongly decided for the reasons
expressed in the dissenting opinion in that case, we can understand
the argument for application of a sort of caveat emptor rule to persons who submit to blackmail or extortion, since it is
far from certain that they will ever expose themselves by seeking
repayment of what they paid out. The distinctions between crimes
like embezzlement and crimes like blackmail and extortion,
therefore, are not merely Page 366 U. S. 238 technical, legalistic "attenuated subleties" for purposes of
this decision, but are differences based upon practicalities such
as often underlie the distinctions that have been developed in our
law.

															In departing from both the Wilcox and Rutkin decisions today, our Brethren offer no persuasive reasons to prove
that their judgment in overruling Wilcox is better than
that of the Justices who decided that case. It contributes nothing
new to the analysis of this problem to say repeatedly that the
dishonest man must be subject to taxation, just as the honest. As
already said, Chief Justice Stone and the others sitting with him
on the Wilcox Court fully accepted that general principle,
and we do still. Applying it here, we would say the embezzler
should be treated just like the law-abiding, honest borrower who
has obtained the owner's consent to his use of the money. [ Footnote 2/27 ] It Page 366 U. S. 239 would be unthinkable to tax the borrower on his "gain" of the
borrowed funds, and thereby substantially impair the lender's
chance of ever recovering the debt. The injury that the Government
would inflict on the lender by making the borrower less able to
repay the loan surely would not be adequately compensated by
telling the lender that he can take a tax deduction for the loss,
and it is equally small comfort to the embezzlement victim for the
Government, after taking part of his property as a tax on the
embezzler, to tell the victim that he can take a deduction for his
loss if he has any income against which to offset the deduction.
There is, of course, one outstanding distinction between a borrower
and an embezzler, and that is that the embezzler uses the funds
without the owner's consent. This distinction can be of no
importance for purposes of taxability of the funds, however,
because, as a matter of common sense, it suggests that there is, if
anything, less reason to tax the embezzler than the borrower. But
if this distinction is to be the reason why the embezzlement must
be taxed just as "the gains of the honest laborer," then the use of
this slogan in this case is laid bare as no more than a means of
imposing a second punishment for the crime of embezzlement without
regard to revenue considerations, the effect on the rightful owner,
or the proper role of this Court when asked to overrule a criminal
statutory precedent. The double jeopardy implications would seem
obvious, [ Footnote 2/28 ] Page 366 U. S. 240 and discussion of the serious inadvisability for other reasons
of thus injecting the Federal Government into local law enforcement
can be found in the dissenting opinion in Rutkin. We regret very much that it seems to be implied that the writer
of the Rutkin opinion and those who agreed to it intended
to overrule Wilcox when it is manifest that the language
the Court used in Rutkin was meant to leave precisely the
opposite impression. We are sure that our Brethren at that time did
not intend to mislead the public, and it would be hard to imagine
why they said what they did in the Rutkin opinion had they
not specifically considered and rejected the possibility of
overruling Wilcox then and there. We think it is
unjustifiable to say nine years after Rutkin that it
"devitalized" or "repudiated" the Wilcox holding when the Rutkin opinion said explicitly that Wilcox is
still the rule as to embezzlement. Congress has seen fit to let
both decisions stand, and we think the present Court should do the
same. V Even if we were to join with our Brethren in accepting the
Government's present contention that Wilcox and Rutkin cannot both stand, we would disagree as to which of
the two decisions should now be repudiated. This is true not only
because we would feel less inhibition about narrowing, rather than
broadening, the reach of a previously construed criminal statute.
Regardless of such considerations, our conviction that the Rutkin case was wrongly decided in this Court remains
undiminished and has been further substantiated by the subsequent
events in that controversy, which show all the more clearly the
deplorable consequences that can result when federal courts subject
people who violate state criminal laws to Page 366 U. S. 241 a double or treble prosecution for the state crime under the
guise of attempted enforcement of federal tax laws. [ Footnote 2/29 ]

															For the foregoing reasons, as well as the reasons stated in MR.
JUSTICE WHITTAKER's opinion, we would reaffirm our holding in Commissioner v. Wilcox, reverse this judgment and direct
that the case be dismissed.

															[ Footnote 2/1 ]

															G.C.M. No. 24945, 1946-2 Cum.Bull. 27, 28. This was precisely in
accord with this Court's statement of the proper rule in the Wilcox opinion:

															"Taxable income may arise, to be sure, from the use or in
connection with the use of such [embezzled] property. . . . But,
apart from such factors, the bare receipt of property or money
wholly belonging to another lacks the essential characteristics of
a gain or profit within the meaning of Section 22(a)."

															327 U.S. at 327 U. S.
408 .

															[ Footnote 2/2 ] See, for example, Great Northern R. Co. v. Sunburst Oil
& Refining Co., 287 U. S. 358 .

															[ Footnote 2/3 ] See, for example, United States v. L. Cohen Grocery
Co., 255 U. S. 81 .

															[ Footnote 2/4 ]

															7 Cranch at 11 U. S. 34 . And
see United States v. Coolidge, 1 Wheat. 415.

															[ Footnote 2/5 ] United States v. Sullivan, 274 U.
S. 259 , 274 U. S.
263 .

															[ Footnote 2/6 ]

															327 U.S. at 327 U. S.
408 .

															[ Footnote 2/7 ] Wilcox v. Commissioner, 148 F.2d 933.

															[ Footnote 2/8 ]

															127 F.2d 572.

															[ Footnote 2/9 ]

															126 F.2d 723.

															[ Footnote 2/10 ]

															127 F.2d at 573.

															[ Footnote 2/11 ] Ibid. The same reasoning can be found in our opinion in Alison v. United States, 344 U. S. 167 , 344 U. S.
169 -170.

															[ Footnote 2/12 ]

															127 F.2d at 574.

															[ Footnote 2/13 ] E.g., Commissioner v. Smith, 324 U.
S. 177 (compensation through exercise of stock option),
led to § 218 of the Revenue Act of 1950, adding § 130A to the 1939
Code; Commissioner v. Tower, 327 U.
S. 280 ; Lusthaus v. Commissioner, 327 U.
S. 293 ; and Commissioner v. Culbertson, 337 U. S. 733 (family partnerships), led to § 340 of the Revenue Act of 1951,
adding § 191 to the 1939 Code; United States v. Silk, 331 U. S. 704 ("employees" for purpose of Social Security employment tax), led to
the Joint Resolution of June 14, 1948, c. 468, 62 Stat. 438,
amending several sections of the 1939 Code; Commissioner v.
Estate of Church, 335 U. S. 632 , and Estate of Spiegel v. Commissioner, 335 U.
S. 701 (estate tax), led to the Act of October 25, 1949,
§ 7, 63 Stat. 891, 894, amending § 811(c) of the 1939 Code; Wilmette Park Dist. v. Campbell, 338 U.
S. 411 (amusement tax), led to § 402 of the Revenue Act
of 1951, adding § 1701(d) to the 1939 Code; Commissioner v.
Korell, 339 U. S. 619 (amortization of bond premium), led to § 217 of the Revenue Act of
1950, amending § 125(b)(1) of the 1939 Code.

															[ Footnote 2/14 ]

															46 Stat. 1516; see 74 Cong.Rec. 7078-7079,
7198-7199.

															[ Footnote 2/15 ]

															H.R. 8854, 86th Cong., 1st Sess.; H.R. 312, 87th Cong., 1st
Sess.

															[ Footnote 2/16 ]

															"To explain the cause of nonaction by Congress when Congress
itself sheds no light is to venture into speculative unrealities.
Congress may not have had its attention directed to an undesirable
decision; and there is no indication that, as to the St.
Louis Trust cases, it had, even by any bill that found its
way into a committee pigeonhole." 309 U. S. 309 U.S.
106, 309 U. S.
119 -120. (Emphasis supplied.)

															[ Footnote 2/17 ]

															"Thus, the affirmative action taken by Congress in 1942
negatives any inference that otherwise might be drawn from its
silence when it reenacted the oath in 1940." 328 U. S. 328 U.S.
61, 328 U. S.
70 .

															[ Footnote 2/18 ]

															223 F.2d 436.

															[ Footnote 2/19 ]

															Petition for certiorari, p. 14, n. 6, Commissioner v. Estate
of Dix, 350 U.S. 894.

															[ Footnote 2/20 ] Id. at 15.

															[ Footnote 2/21 ]

															350 U.S. 894.

															[ Footnote 2/22 ]

															348 U.S. at 348 U. S.
244 .

															[ Footnote 2/23 ]

															Brief for the United States, pp. 32-33.

															[ Footnote 2/24 ]

															"We do not reach in this case the factual situation involved in Commissioner v. Wilcox, 327 U. S. 404 . We limit that
case to its facts. There, embezzled funds were held not to
constitute taxable income to the embezzler under § 22(a). The issue
here is whether money extorted from a victim with his consent
induced solely by harassing demands and threats of violence is
included in the definition of gross income under § 22(a)."

															343 U.S. at 343 U. S.
138 .

															[ Footnote 2/25 ]

															Brief for the United States in Opposition to Petition for
Certiorari, Rutkin v. United States, 343 U.
S. 130 , pp. 13-14. The full sentence in the Court of
Appeals opinion from which the Government quoted was:

															"So he [Rutkin] did receive the money with a 'semblance of a bona fide claim of right,' as the embezzler had not in Commissioner of Internal Revenue v. Wilcox, supra, at 327 U. S. 408 ." United States v. Rutkin, 189 F.2d 431, 435.

															[ Footnote 2/26 ]

															This factual distinction was clearly emphasized in the Court's
opinion in Rutkin: "[Rutkin] induced Reinfeld to consent to pay the money by
creating a fear in Reinfeld that harm otherwise would come to him
and to his family. Reinfeld thereupon delivered his own money to
petitioner. Petitioner's control over the cash so received was such
that, in the absence of Reinfeld's unlikely repudiation of the
transaction and demand for the money's return, petitioner
could enjoy its use as fully as though his title to it were
unassailable." Rutkin v. United States, 343 U.
S. 130 , 343 U. S.
136 -137. (Emphasis supplied.)

															[ Footnote 2/27 ]

															The analogy between the borrower and the embezzler was lucidly
analyzed by Judge Sibley in McKnight v. Commissioner, 127
F.2d 572, 573-574.

															The several cases relied on by the Court do not, in our
judgment, justify imposing a tax upon embezzled money. Corliss
v. Bowers, 281 U. S. 376 ,
involved income accumulating in a trust fund belonging to the
taxpayer and over which he retained control. North American Oil
Consolidated v. Burnet, 286 U. S. 417 ; United States v. Lewis, 340 U. S. 590 ; and Healy v. Commissioner, 345 U. S. 278 ,
were cases in which the taxpayer had asserted a bona fide, though mistaken, claim of right. In North American Oil, the taxpayer not only had a bona fide claim to the money
taxed, but there had been an adjudication that he was entitled to
it, and there was only the tenuous possibility that a competing
claimant might later upset that adjudication. The Lewis and Healy cases involved a tax on payments made and
received as a result of mutual mistake, and it was held that the
administration of the tax laws on an annual basis need not be upset
for the convenience of those who caused the mistaken payments to be
made and reported as income. By contrast, the victims do not cause
embezzlements, and the Government is not misled or inconvenienced
under Wilcox, because the embezzler is always fully aware
that the embezzled funds are not rightfully his, and presumably
will not report otherwise.

															[ Footnote 2/28 ] See the dissenting opinion in Bartkus v.
Illinois, 359 U. S. 121 , 359 U. S. 150 .
It is interesting to note that, on July 22, 1959, shortly after the Bartkus decision, Illinois, in order to avoid the danger
of prosecuting men in both state and federal courts for the same
crime, passed a statute making conviction or acquittal in a federal
prosecution a defense to a state prosecution for the same criminal
act. Illinois Laws, 1959, p. 1893, § 1; 38 Ill.Ann.Stat.
(Cum.Supp.1960) § 601.1. Thus, while Illinois is moving away from
such double prosecutions, this Court is moving even further than Bartkus in the direction of authorizing such
prosecutions.

															[ Footnote 2/29 ]

															The subsequent history of the Rutkin-Reinfeld controversy can,
in part, be read in United States v. Rutkin, 208 F.2d 647,
especially Judge Kalodner's dissenting opinion at 655; United
States v. Rutkin, 212 F.2d 641, especially at 644; and Rutkin v. Reinfeld, 122 F. Supp. 265, reversed, 229 F.2d 248.

															MR. JUSTICE CLARK, concurring in part and dissenting in part as
to the opinion of THE CHIEF JUSTICE.

															Although I join in the specific overruling of Commissioner
v. Wilcox, 327 U. S. 404 (1946), in THE CHIEF JUSTICE's opinion, I would affirm this
conviction on either of two grounds. I believe that the Court not
only devitalized Wilcox, by limiting it to its facts in Rutkin v. United States, 343 U. S. 130 (1952), but that, in effect, the Court overruled that case sub
silentio in Commissioner v. Glenshaw Glass Co., 348 U. S. 426 (1955). Even if that not be true, in my view, the proof shows
conclusively that petitioner, in willfully failing to correctly
report his income, placed no bona fide reliance on Wilcox. MR. JUSTICE HARLAN, whom MR. JUSTICE FRANKFURTER joins,
concurring in part and dissenting in part as to the opinion of THE
CHIEF JUSTICE.

															I fully agree with so much of THE CHIEF JUSTICE's opinion as
dispatches Wilcox to a final demise. But, as to the
disposition of this case, I think that, rather than an outright
reversal, which his opinion proposes, the reversal should be for a
new trial. Page 366 U. S. 242 I share the view that it would be inequitable to sustain this
conviction when, by virtue of the Rutkin-Wilcox dilemma,
it might reasonably have been thought by one in petitioner's
position that no tax was due in respect of embezzled moneys. For,
as is pointed out, Rutkin did not expressly overrule Wilcox, but instead merely confined it "to its facts."
Having now concluded that Wilcox was wrongly decided
originally, the problem in this case thus becomes one of how to
overrule Wilcox "in a manner that will not prejudice those
who might have relied on it." 366 U.S. at 366 U.S. 221 .

															It is argued, in reliance on Spies v. United States, 317 U. S. 492 , and Holland v. United States, 348 U.
S. 121 , that, so long as Wilcox remained on the
books, the element of "willfulness" required in prosecutions of
this kind [ Footnote 3/1 ] "could not
be proven," and hence, that the conviction of this petitioner fails
without more. This would mean, I take it, that no future
prosecution or past conviction involving tax derelictions of this
nature, occurring during the Wilcox period, may be brought
or allowed to stand. I cannot agree to such a disposition, which,
in my view, is warranted by neither principle nor authority, and
would carry mischievous implications for the future.

															The Spies and Holland cases, which are said to
support outright reversal, stand for no more than that where, as
here, a criminal tax statute makes "willfulness" an element of the
offense, the Government must prove an "evil motive and want of
justification in view of all the financial circumstances" on the
part of the defendant in failing to do what was required of him.
While I agree that, in the present case, this made germane on the
issue of willfulness the petitioner's reliance or nonreliance on
the Page 366 U. S. 243 continued vitality of the Wilcox doctrine, [ Footnote 3/2 ] I can find nothing in Spies or Holland which justifies the view that
the mere existence of Wilcox suffices alone to vitiate
petitioner's conviction as a matter of law. If, as appears to have
been the case, there was erroneous failure to take that factor into
account at the trial on the issue of willfulness, the most that
should happen is that petitioner should be given a new trial. This
indeed is what Spies and Holland affirmatively
indicate as the right solution of the problem this case presents.
In Spies, it was said (at 317 U. S.
499 -500):

															". . . By way of Illustration, and not by way of limitation, we
would think affirmative willful attempt may be inferred from
conduct such as keeping a double set of books, making false entries
or alterations, or false invoices or documents, destruction of
books or records, concealment of assets or covering up sources of
income, handling of one's affairs to avoid making the records usual
in transactions of the kind, and any conduct, the likely effect of
which would be to mislead or to conceal. If the tax evasion motive
plays any part in such conduct, the offense may be made out even
though the conduct may also serve other purposes, such as
concealment of other crime."

															"In this case, there are several items of evidence, apart from
the default in filing the return and paying the tax, which the
Government claims will support an inference of willful attempt to
evade or Page 366 U. S. 244 defeat the tax. These go to establish that petitioner insisted
that certain income be paid to him in cash, transferred it to his
own bank by armored car, deposited it not in his own name, but in
the names of others of his family, and kept inadequate and
misleading records. Petitioner claims other motives animated him in
these matters. We intimate no opinion. Such inferences are for the
jury. If, on proper submission, the jury found these acts, taken
together with willful failure to file a return and willful failure
to pay the tax, to constitute a willful attempt to defeat or evade
the tax, we would consider conviction of a felony sustainable."

															To the same effect, see Holland, supra, at p. 348 U. S.
139 .

															In the case at hand, the evidence of devious financial
arrangements might well support the inference that petitioner's
purpose was not only to commit the embezzlement, but also to
secrete and immunize his gains from what he considered to be his
tax liabilities in respect of those gains. The District Court, as
the trier of the facts (there having been no jury), found that
petitioner's acts were "willful, and were done in a knowing and
conscious attempt to evade and defeat" his tax obligations. But
since it does not appear that petitioner's possible reliance on the Wilcox doctrine was considered below, Spies and Holland make it appropriate for us to send the case back
for a new trial. They do not support foreclosing the Government
from even undertaking to prove that the petitioner's conduct was
"willful" in this respect.

															An outright reversal is equally unsound on principle. I take it
that our decisions in the tax, and any other field, for that
matter, relate back to the actual transactions with which they are
concerned, and that that is only the normal concomitant of the fact
that we do not sit as an administrative agency making rulings for
the future, but rather adjudicate actual controversies as Page 366 U. S. 245 to rights and liabilities under the laws of the United States.
There can be, I think, two justifications for barring a prosecution
of this petitioner in the unusual circumstances presented here: (1)
that, by reason of Rutkin having formally left intact the Wilcox doctrine, petitioner did not have due warning of
his possible criminal liability; and (2) that the Court, in making
new "law" in Rutkin, should, like the legislature, not
impose criminal liability ex post facto. As to the first consideration, where the defendant is charged in
a case like this with having "willfully" violated the law, I
believe that both reason and authority require no more than that
the trier of fact be instructed that it must take into account in
determining the defendant's "evil motive and want of
justification," Spies v. United States, 317 U.S. at 317 U. S. 498 ,
his possible reliance on Wilcox, which not until now has
this Court explicitly stated was wrongly decided. As far as
fairness to this petitioner is concerned, I do not see why that is
not amply accorded by the disposition which Spies itself
exemplifies. See p. 366 U. S. 243 supra. On the other hand, if the trier of fact, properly
instructed, finds that the petitioner did not act in bona
fide reliance on Wilcox, but deliberately refused to
report income and pay taxes thereon knowing of his obligation to do
so and not relying on any exception in the circumstances, I do not
see why even the strictest definition of the element of
"willfulness" would not have been satisfied. Willfulness goes to
motive, and the quality of a particular defendant's motive would
not seem to be affected by the fact that another taxpayer similarly
situated had a different motive.

															An altogether analogous situation was presented in United
States v. Murdock, 290 U. S. 389 . In
that case, the respondent had been convicted of willfully failing
to supply information to the Bureau of Internal Revenue in that he
relied on the possibility of state prosecution as Page 366 U. S. 246 justifying his invoking the federal privilege against
self-incrimination. The Court said in that case:

															". . . He whose conduct is defined as criminal is one who
' willfully ' fails to pay the tax, to make a return, to
keep the required records, or to supply the needed information.
Congress did not intend that a person, by reason of a bona
fide misunderstanding as to his liability for the tax, . . .
should become a criminal by his mere failure to measure up to the
prescribed standard of conduct. . . ."

															"It follows that the respondent was entitled to the charge he
requested with respect to his good faith and actual belief. Not
until this court pronounced judgment in United States v.
Murdock, 284 U. S. 141 , had it been
definitely settled that one under examination in a federal tribunal
could not refuse to answer on account of probable incrimination
under state law. The question was involved, but not decided, in Ballman v. Fagin, 200 U. S. 186 , 200 U. S.
195 , and specifically reserved in Vajtauer v. Comm'r
of Immigration, 273 U. S. 103 , 273 U. S.
113 . The trial court could not, therefore, properly tell
the jury the defendant's assertion of the privilege was so
unreasonable and ill founded as to exhibit bad faith and establish
willful wrongdoing. This was the effect of the instructions given.
We think the Circuit Court of Appeals correctly upheld the
respondent's right to have the question of absence of evil motive
submitted to the jury. . . ."

															(Emphasis supplied.) It would seem that precisely the same
disposition is in order in this case. Nor do I think that
distinctions in terms of the nature of the defendant's legal
misapprehension, its degree, its justifiability, or its source are
either warranted or would be manageable as a basis for deciding
future cases. Page 366 U. S. 247 Coming now to the other possible rationale for barring the
prosecution of this petitioner, it might be argued that petitioner,
at the time he failed to make his return, was not under any
misapprehension as to the law, but indeed that, at the time and
under the decisions of this Court, his view of the law was entirely
correct. The argument not only seems to beg the question, but
raises further questions as to the civil liability of one situated
in the circumstances of this petitioner. Petitioner's obligation
here derived not from the decisions of this or any other court, but
from the Act of Congress imposing the tax. It is hard to see what
further point is being made once it is conceded that petitioner, if
he was misled by the decisions of this Court, is entitled to plead
in defense that misconception. Only in the most metaphorical sense
has the law changed: the decisions of this Court have changed, and
the decisions of a court interpreting the acts of a legislature
have never been subject to the same limitations which are imposed
on legislatures themselves, United States Constitution, Art, I, §§
9, 10, forbidding them to make any ex post facto law,
[ Footnote 3/3 ] and, in the case of
States, to impair the obligation Page 366 U. S. 248 of a contract. Ross v. Oregon, 227 U.
S. 150 ; New Orleans Waterworks Co. v. Louisiana
Sugar Refining Co., 125 U. S. 18 .

															The proper disposition of this case, in my view, is to treat as
plain error, Fed.Rules Crim.Proc. 52(b), the failure of the trial
court as trier of fact to consider whatever misapprehension may
have existed in the mind of the petitioner as to the applicable law
in determining whether the Government had proved that petitioner's
conduct had been willful as required by the statute. On that basis,
I would send the case back for a new trial.

															[ Footnote 3/1 ]

															The relevant statutes are set forth in footnotes 1-2 4-5 of
THE CHIEF JUSTICE's opinion Ante, pp. 214-215.

															[ Footnote 3/2 ] Compare American Law Institute, Model Penal Code,
tentative draft No. 4, § 2.04:

															"(1) Ignorance or mistake as to a matter of fact or law is a
defense if:"

															"(a) the ignorance or mistake negatives the purpose, knowledge,
belief, recklessness or negligence required to establish a material
element of the offense. . . ."

															[ Footnote 3/3 ]

															Aside from problems of warning and specific intent, the policy
of the prohibition against ex post facto legislation would
seem to rest on the apprehension that the legislature, in imposing
penalties on past conduct, even though the conduct could properly
have been made criminal and even though the defendant who engaged
in that conduct in the past believed he was doing wrong (as, for
instance, when the penalty is increased retroactively on an
existing crime), may be acting with a purpose not to prevent
dangerous conduct generally, but to impose by legislation a penalty
against specific persons or classes of persons. That this policy is
inapplicable to decisions of the courts seems obvious: their
opportunity for discrimination is more limited than the
legislature's, in that they can only act in construing existing law
in actual litigation. Given the divergent pulls of flexibility and
precedent in our case law system, it is disquieting to think what
perplexities and what subtleties of distinction would be created in
applying this policy, which so properly limits legislative action,
to the decisions of the courts.

															MR. JUSTICE WHITTAKER, whom MR. JUSTICE BLACK and MR. JUSTICE
DOUGLAS join, concurring in part and dissenting in part.

															The starting point of any inquiry as to what constitutes taxable
income must be the Sixteenth Amendment, which grants Congress the
power "to lay and collect taxes on incomes, from whatever source
derived. . . ." It has long been settled that Congress' broad
statutory definitions of taxable income were intended "to use the
full measure of (the Sixteenth Amendment's) taxing power." Helvering v. Clifford, 309 U. S. 331 , 309 U. S. 334 ; Douglas v. Willcuts, 296 U. S. 1 , 296 U. S. 9 .
Equally well settled is the principle that the Sixteenth Amendment
"is to be taken as written, and is not to be extended beyond the
meaning clearly indicated by the language used." Edwards v.
Cuba R. Co., 268 U. S. 628 , 268 U. S. 631 .
[ Footnote 4/1 ] The language of the
Sixteenth Amendment, as well as our prior controlling
decisions, Page 366 U. S. 249 compels me to conclude that the question now before us --
whether an embezzler receives taxable income at the time of his
unlawful taking -- must be answered negatively. Since the
prevailing opinion reaches an opposite conclusion, I must
respectfully dissent from that holding, although I concur in the
Court's judgment reversing petitioner's conviction. I am convinced
that Commissioner v. Wilcox, 327 U.
S. 404 , which is today overruled, was correctly decided
on the basis of every controlling principle used in defining
taxable income since the Sixteenth Amendment's adoption.

															THE CHIEF JUSTICE's opinion, although it correctly recites Wilcox's holding that "embezzled money does not constitute
taxable income to the embezzler in the year of the
embezzlement " (emphasis added), fails to explain or to answer
the true basis of that holding. Wilcox did not hold that
embezzled funds may never constitute taxable income to the
embezzler. To the contrary, it expressly recognized that an
embezzler may realize a taxable gain to the full extent of the
amount taken if and when it ever becomes his. The applicable test
of taxable income, i.e., the "presence of a claim of right
to the alleged gain," of which Wilcox spoke, was but a
correlative statement of the factor upon which the decision placed
its whole emphasis throughout, namely, the "absence of a definite,
unconditional obligation to repay or return [the money]." 327 U.S.
at 327 U. S. 408 .
In holding that this test was not met at the time of the
embezzlement, the Wilcox opinion repeatedly stressed that
the embezzler had no " bona fide legal or equitable claim"
to the embezzled funds, ibid.; that the victim never
"condoned or forgave the taking of the money, and still holds him
liable to restore it," id. at 327 U. S. 406 ;
and that the "debtor-creditor relationship was definite and
unconditional." Id. at 327 U. S. 409 .
These statements all express the same basic fact -- the fact which
is emphasized most strongly in the opinion's conclusion
explaining Page 366 U. S. 250 why the embezzler had not yet received taxable income:

															"Sanctioning a tax under the circumstances before us would serve
only to give the United States an unjustified preference as to part
of the money which rightfully and completely belongs to the
taxpayer's employer. " Id. at 327 U. S. 410 .
(Emphasis added.)

															However, Wilcox plainly stated that, "if the
unconditional indebtedness is cancelled or retired, taxable income
may adhere, under certain circumstances, to the taxpayer." 327 U.S.
at 327 U. S. 408 .
More specifically, it recognized that, had the embezzler's victim
"condoned or forgiven any part of the [indebtedness], the
[embezzler] might have been subject to tax liability to that
extent," id. at 327 U. S. 410 , i.e., in the tax year of such forgiveness.

															These statements reflect an understanding of, and regard for,
substantive tax law concepts solidly entrenched in our prior
decisions. Since our landmark case of United States v. Kirby
Lumber Co., 284 U. S. 1 , it has
been settled that, upon a discharge of indebtedness by an event
other than full repayment, the debtor realizes a taxable gain in
the year of discharge to the extent of the indebtedness thus
extinguished. Such gains are commonly referred to as ones realized
through "bargain cancellations" of indebtedness, and it was in this
area, and, indeed, in Kirby Lumber Co. itself, that the
"accession" theory or "economic gain" concept of taxable income,
upon which THE CHIEF JUSTICE's opinion today mistakenly relies,
found its genesis. In that case, the taxpayer, a corporation, had
reduced a portion of its debt, with a corresponding gain in assets,
by purchasing its bonds in the open market at considerably less
than their issue price. Mr. Justice Holmes, who wrote the Court's
opinion, found it unnecessary to state the elementary principle
that, so long as the bonds remained a fully enforceable debt
obligation of the taxpayer, there could be no taxable gain.
However, when the taxpayer retired the debt by purchasing Page 366 U. S. 251 the bonds for less than their face value, it "made a clear
[taxable] gain," and "realized within the year an accession to
income" in the amount of its bargain. 284 U.S. at 284 U. S. 3 .

															This doctrine has since been reaffirmed and strengthened by us, see e.g., Helvering v. American Chicle Co., 291 U.
S. 426 ; Commissioner v. Jacobson, 336 U. S.
28 , and by the lower federal courts in numerous
decisions involving a variety of "bargain cancellations" of
indebtedness, as by a creditor's release condoning or forgiving the
indebtedness in whole or in part, [ Footnote 4/2 ] or by the running of a statute of
limitations barring the legal enforceability of the obligation.
[ Footnote 4/3 ] In none of these
cases has it been suggested that a taxable gain might be realized
by the debtor at any time prior to the effective date of discharge,
and, as Wilcox recognized, there is no rational basis on
which to justify such a rule where the debt arises through
embezzlement.

															An embezzler, like a common thief, acquires not a semblance of
right, title, or interest in his plunder, and, whether he spends it
or not, he is indebted to his victim in the full amount taken as
surely as if he had left a signed promissory note at the scene of
the crime. Of no consequence from any standpoint is the absence of
such formalities as (in the words of the prevailing opinion) "the
consensual recognition, express or implied, or an obligation to
repay." The law readily implies whatever "consensual recognition"
is needed for the rightful owner to assert an immediately ripe and
enforceable obligation of Page 366 U. S. 252 repayment against the wrongful taker. These principles are not
"attenuated subtleties," but are among the clearest and most easily
applied rules of our law. They exist to protect the rights of the
innocent victim, and we should accord them full recognition and
respect.

															The fact that an embezzler's victim may have less chance of
success than other creditors in seeking repayment from his debtor
is not a valid reason for us further to diminish his prospects by
adopting a rule that would allow the Commissioner of Internal
Revenue to assert and enforce a prior federal tax lien against that
which "rightfully and completely belongs" to the victim. Commissioner v. Wilcox, supra, at 327 U. S. 410 .
THE CHIEF JUSTICE's opinion quite understandably expresses much
concern for "honest taxpayers," but it attempts neither to deny nor
justify the manifest injury that its holding will inflict on those
honest taxpayers, victimized by embezzlers, who will find their
claims for recovery subordinated to federal tax liens. Statutory
provisions, by which we are bound, clearly and unequivocally accord
priority to federal tax liens over the claims of others, including
"judgment creditors." [ Footnote
4/4 ] Page 366 U. S. 253 However, if it later happens that the debtor-creditor
relationship between the embezzler and his victim is discharged by
something other than full repayment, such as by the running of a
statute of limitations against the victim's claim, or by a release
given for less than the full amount owed, the embezzler, at that
time, but not before, will have made a clear taxable gain and
realized "an accession to income" which he will be required, under
full penalty of the law, to report in his federal income tax return
for that year. No honest taxpayer could be harmed by this rule.

															The inherent soundness of this rule could not be more clearly
demonstrated than as applied to the facts of the case before us.
Petitioner, a labor union official, concededly embezzled sums
totaling more than $738,000 from the union's funds over a period
extending from 1951 to 1954. When the shortages were discovered in
1956, the union at once filed civil actions against petitioner to
compel repayment. For reasons which need not be detailed here,
petitioner effected a settlement agreement with the union on July
30, 1958, whereby, in exchange for releases fully discharging his
indebtedness, he repaid to the union the sum of $13,568.50.
Accordingly, at least so far as the present record discloses,
petitioner clearly realized a taxable gain in the year the releases
were executed to the extent of the difference between the amount
taken and the sum restored. However, the Government brought the
present action against him not for his failure to report this gain
in his 1958 return, but for his failure to report that he had
incurred "income" from -- actually indebtedness to -- the union in
each of the years 1951 through 1954. It is true that the Government
brought a criminal evasion prosecution, rather than a civil
deficiency proceeding, against petitioner, but this can in no way
alter the substantive tax law rules which alone are determinative
of liability in either case. Page 366 U. S. 254 There can be no doubt that, until the releases were executed in
1958, petitioner and the union stood in an absolute and
unconditional debtor-creditor relationship, and, under all of our
relevant decisions, no taxable event could have occurred until the
indebtedness was discharged for less than full repayment.
Application of the normal rule in such cases will not hinder the
efficient and orderly administration of the tax laws any more than
it does in other situations involving "bargain cancellations" of
indebtedness. More importantly, it will enhance the creditor's
position by assuring that prior federal tax liens will not attach
to the subject of the debt when he seeks to recover it.

															Notwithstanding all of this, THE CHIEF JUSTICE's opinion
concludes that there is no difference between embezzled funds and
"gains" from other "illegal sources," and it points to the fact
that Congress, in its 1916 revision of the 1913 Income Tax Act,
omitted the word "lawful" in describing businesses whose income was
to be taxed. The opinion then cites United States v.
Sullivan, 274 U. S. 259 , in
which it was held that, under the revised statute, gains from
illicit traffic in liquor must be reported in gross income, since
there is no "reason why the fact that a business is unlawful should
exempt it from paying the taxes that, if lawful, it would
have to pay." Id. at 274 U. S. 263 .
(Emphasis added.) That theory has been the primary basis for taxing
"unlawful gains of many kinds" which the prevailing opinion today
recites, such as black market profits, gambling proceeds, money
derived from the sale of unlawful insurance policies, etc.
[ Footnote 4/5 ] For, even if lawful,
the gains from such activities would clearly Page 366 U. S. 255 not be exempted from taxation. However, as applied to embezzled
funds, the holding in Sullivan contradicts, rather than
supports, the Court's conclusion today. Obviously, embezzlement
could never become "lawful" and still retain its character. If
"lawful," it would constitute nothing more than a loan, or possibly
a gift, to the "embezzler," neither of which would produce a
taxable gain to him.

															There is still another obvious and important distinction between
embezzlement and the varieties of illegal activity listed by the
prevailing opinion -- one which clearly calls for a different tax
treatment. Black marketeering, gambling, bribery, graft, and like
activities generally give rise to no legally enforceable right of
restitution -- to no debtor-creditor relationship which the law
will recognize. [ Footnote 4/6 ]
Condemned either by statute or public policy, or both, such
transactions are void ab initio. Since any consideration
which may have passed is not legally recoverable, its recipient has
realized a taxable gain, an "accession to income," as clearly as if
his "indebtedness" had been discharged by a full release or by the
running of a statute of limitations. As we have already shown at
length, quite the opposite is true when an embezzlement occurs; for
then the victim acquires an immediately ripe and enforceable claim
to repayment, and the embezzler assumes a legal debt equal to his
acquisition.

															To reach the result that it does today, THE CHIEF JUSTICE's
opinion constructs the following theory for defining taxable
income:

															"When a taxpayer acquires earnings, lawfully or unlawfully,
without the consensual recognition, Page 366 U. S. 256 express or implied, of an obligation to repay and without
restriction as to their disposition,"

															"he has received income which he is required to return, even
though it may still be claimed that he is not entitled to retain
the money, and even though he may still be adjudged liable to
restore its equivalent."

															" North American Oil Consolidated v. Burnet, supra, 286 U. S. 424 . In such case, the
taxpayer has 'actual command over the property taxed -- the actual
benefit for which the tax is paid,' Corliss v. Bowers,
supra. This standard brings wrongful appropriations within the
broad sweep of 'gross income;' it excludes loans. When a
law-abiding taxpayer mistakenly receives income in one year, which
receipt is assailed and found to be invalid in a subsequent year,
the taxpayer must nonetheless report the amount as 'gross income'
in the year received. United States v. Lewis, supra; Healy v.
Commissioner, supra. "

															This novel formula finds no support in our prior decisions,
least of all in those which are cited. Corliss v. Bowers, 281 U. S. 376 ,
involved nothing more than an inter vivos trust created by
the taxpayer to pay the income to his wife. Since he had reserved
the power to alter or abolish the trust at will, its income was
taxable to him under the express provisions of § 219(g), (h) of the
Revenue Act of 1924. North American Oil Consolidated v.
Burnet, 286 U. S. 417 , is
the case which introduced the principle since used to facilitate
uniformity and certainty in annual tax accounting procedure, i.e., that a taxpayer must report in gross income, in the
year in which received, money or property acquired under a "claim
of right" -- a colorable claim of the right to exclusive
possession of the money or property. Thus, in its complete
form, the sentence in North American Oil from which the
above-quoted fragment was extracted reads:

															"If a taxpayer receives earnings under a claim of right and without Page 366 U. S. 257 restriction as to its [ sic ] disposition, he has
received income which he is required to return, even though it may
still be claimed that he is not entitled to retain the money, and
even though he may still be adjudged liable to restore its
equivalent." Id. at 286 U. S. 424 .
(Emphasis added.) But embezzled funds, like stolen property
generally, are not "earnings" in any sense, and are held without a
vestige of a colorable claim of right; they constitute the
principal of a debt. Of no significance whatever is the formality
of "consensual recognition, express or implied" of an obligation to
repay. By substituting this meaningless abstraction in place of the
omitted portion of the North American Oil test of when a
receipt constitutes taxable income, the prevailing opinion today
goes far beyond overruling Wilcox -- it reduces a
substantial body of tax law into uncertainty and confusion. The
above-cited case of United States v. Lewis, 340 U.
S. 590 , decided 19 years after North American
Oil, demonstrates the truth of this. For, there we said:

															"The 'claim of right' interpretation of the tax laws has long
been used to give finality to [the accounting] period, and is not
deeply rooted in the federal tax system. . . . We see no reason why
the Court should depart from this well settled interpretation
merely because it results in an advantage or disadvantage to a
taxpayer."

															340 U.S. at 340 U. S. 592 .
The same principle was reiterated and applied in Healy v.
Commissioner, 345 U. S. 278 .

															The supposed conflict between Wilcox and Rutkin, upon which THE CHIEF JUSTICE's opinion seeks to
justify its repudiation of Wilcox, [ Footnote 4/7 ] has been adequately treated in Page 366 U. S. 258 the opinion of MR. JUSTICE BLACK, and I agree with him that
those cases were fully intended to be, and are, reconcilable both
on their controlling facts and applicable law. If the unnecessarily
broad language used in the Rutkin opinion has misled any
of the lower federal courts in their understanding of the
principles underlying Wilcox, we should clarify their
understanding at this time, and continue our adherence to "a prior
doctrine more embracing in its scope, intrinsically sounder, and
verified by experience." Helvering v. Hallock, 309 U. S. 106 , 309 U. S.
119 .

															[ Footnote 4/1 ]

															"A proper regard for its genesis, as well as its very clear
language, requires also that [the Sixteenth] Amendment shall not be
extended by loose construction. . . . Congress cannot, by any
definition [of income] it may adopt, conclude the matter, since it
cannot, by legislation, alter the Constitution, from which alone it
derives its power to legislate, and within whose limitations alone
that power can be lawfully exercised." Eisner v. Macomber, 252 U. S. 189 , 252 U. S.
206 .

															[ Footnote 4/2 ] See, e.g., Spear Box Co. v. Commissioner, 182 F.2d 844; Helvering v. Jane Holding Corp., 109 F.2d 933; Pacific
Magnesium, Inc. v. Westover, 86 F.
Supp. 644 .

															[ Footnote 4/3 ] See, e.g., Schweppe v. Commissioner, 168 F.2d 284; North American Coal Corp. v. Commissioner, 97 F.2d 325; Securities Co. v. United States, 85 F. Supp.
532 .

															[ Footnote 4/4 ]

															26 U.S.C. §§ 6321-6323, 6331; Bankruptcy Act, § 64, sub. a, 11
U.S.C. § 104, sub, a. Moreover, R.S. § 3466 (1975), now codified in
31 U.S.C. § 191, pertaining to state insolvency proceedings against
debtors, commands that "the debts due to the United States shall be
first satisfied." We long ago established that the term "debts" in
this statute includes delinquent federal taxes. Price v. United
States, 269 U. S. 492 , 269 U. S.
499 -500. And even though the tax claim of the Government
may be only a general lien, with notice thereof not yet filed in
the proper local office pursuant to 26 U.S.C. § 6323, we have held
that it must be accorded priority over the claims of all prior
general lienholders, under R.S. § 3466, 31 U.S.C. § 191. United
States v. City of New Britain, 347 U. S.
81 , 347 U. S. 84 -85; United States v. Gilbert Associates, 345 U.
S. 361 , 345 U. S. 366 ; United States v. Texas, 314 U. S. 480 , 314 U. S. 488 . See Mertens, Law of Federal Income Taxation, § 12.103,
note 67; id., §§ 54.10-54.56.

															[ Footnote 4/5 ] See cases cited in Rutkin v. United States, 343 U. S. 130 , 343 U. S. 137 ,
note 8. See also United States v. Bruswitz, 219 F.2d 59; Steinberg v. United States, 14 F.2d 564; Barker v.
United States, 26 F. Supp. 1004, 88 Ct.Cl. 468; Silberman
v. Commissioner, 44 B.T.A. 600.

															[ Footnote 4/6 ]

															Restatement, Contracts, § 598; 6 Corbin, Contracts, §§ 1373 et
seq. (1951). That the rule applies even as to "unlawful insurance
polices" is undoubted. Patterson, Essentials of Insurance Law (2d
ed. 1957), § 43 at 186.

															[ Footnote 4/7 ]

															I cannot agree with THE CHIEF JUSTICE's assertion that Wilcox has been "thoroughly devitalized" by Rutkin. See, e.g., the recent case of United
States v. Peelle, 159 F. Supp.
45 (D.C.E.D.N.Y.1958). There, the Government sought to enforce
liens for federal income taxes claimed to be due on items of
"income" aggregating $678,461.22 which the taxpayer had embezzled
from his corporate employer during the years 1945 through 1949. The
items in question consisted of customers' payments intended for the
corporation, and had been embezzled by the taxpayer and kept by him
in secret bank accounts. In 1951 and 1952, he discharged his
indebtedness by making full restitution of the embezzled funds to
the corporation. The corporation, which used the accrual method of
accounting, paid deficiencies which the Government determined in
its 1945-1949 income tax returns, based on its accrued right to
receive the embezzled customers' payments in those years. Not
satisfied with this, the Government took the position that the
payments were taxable twice during the same years -- once to the
corporation when it accrued the right to receive them, and again to
the embezzler when he diverted them into the secret bank accounts.
Had this effort at double taxation succeeded, the Government's
combined tax claims would have been far in excess of the amount
being taxed.

															In rejecting the Government's argument that the embezzler
received taxable income at the time of the embezzlements, the
District Court relied wholly upon the decision which the Court
today overrules, Commissioner v. Wilcox, supra.