JAMES v. UNITED STATES, (1961)1. Embezzledmoneyis taxable income of theembezzler in the year of the embezzlement under22(a) of theInternal RevenueCodeof 1939!hich defines "#ross income" as includin# "#ainsor $rofitsandincomederivedfromanysource!hatever" and under %1 (a) of the InternalRevenue Code of 19&' !hich defines "#rossincome" as "all income from!hatever sourcederived(" Commissioner v( )ilcox 32* +(,( '-'overruled( .$( 213/222(2. 0fter this Court1s decision in Commissioner v()ilcox su$ra $etitioner embezzled lar#e sums ofmoney durin# the years 19&1 throu#h 19&'( 2efailed to re$ort those amounts as #ross income inhisincometaxreturnsforthoseyears andhe!asconvictedof "!illfully"attem$tin#toevadethe federal income tax due for each of the years19&1 throu#h 19&' in violation of 1'& (b) of theInternal Revenue Code of 1939 and *2-1 of theInternal Revenue Code of 19&'( 2eld3 4he5ud#ment affirmin# the conviction is reversed andthe cause is remanded !ith directions to dismissthe indictment( .$( 21'/21& 222(2*3 6(2d & reversed(Richard E( 7orman ar#ued the cause and filed abrief for $etitioner(0ssistant 8e$uty 0ttorney 7eneral 2effronar#ued the cause for the +nited ,tates( )ith himon the brief !ere ,olicitor 7eneral Ran9in0ssistant 0ttorney 7eneral Rice and :eyerRoth!ac9s(:R( C2IE6 ;+,4ICE )0RRE< announced the5ud#mentoftheCourtandano$inionin!hich:R( ;+,4ICE =RE3%%+(,( 213 21&? Code of 19&'( &2e !assentenced to a total of three years1im$risonment( 4he Court of 0$$eals affirmed(2*3 6(2d &( =ecause of a conflict !ith this Court1sdecision in Commissioner v( )ilcox 32* +(,('-' a case !hose relevant facts are concededlythe same as those in the case no! before us !e#ranted certiorari( 3%2 +(,( 9*'(In )ilcox the Court held that embezzled moneydoes not constitute taxable income to theembezzler in the year of the embezzlement under22 (a) of the Internal Revenue Code of 1939( ,ixyearslaterthisCourtheld inRut9inv(+nited,tates 3'3 +(,( 13- that extorted money doesconstitutetaxableincometotheextortionist inthe year that the money is received under 22 (a)of the Internal Revenue Code of 1939( In Rut9inthe Court did not overrule )ilcox but stated3")e do not reach in this case the factual situationinvolved in Commissioner v( )ilcox 32* +(,('-'( )e limit that case to its facts( 4hereembezzled funds !ere held not to constitutetaxable income to the embezzler under 22 (a)("Id( at 13A( % 2o!everexaminationof thereasonin#usedinRut9in leads us inesca$ably to the conclusion that)ilcox !as thorou#hly devitalized(4hebasis for the)ilcoxdecision!as "that ataxable #ain is conditioned u$on (1) the $resenceof a claim of ri#ht to the alle#ed #ain and (2) theabsence of a definite >3%% +(,( 21321%? unconditional obli#ation to re$ay or returnthat !hich !ould other!ise constitute a #ain()ithout some bona fide le#al or eBuitable claimeven thou#h it be contin#ent or contested innature the tax$ayer cannot be said to havereceived any #ain or $rofit !ithin the reach of 22(a)(" Commissionerv()ilcox su$raat$( '-A(,ince )ilcox embezzled the money held it"!ithout any semblance ofa bona fide claim ofri#ht" ibid( and therefore "!as at all times underanunBualifieddutyandobli#ationtore$aythemoneytohisem$loyer" ibid(theCourt foundthat the money embezzled !as not includible!ithin"#rossincome("=ut Rut9in1sle#al claim!as no #reater than that of )ilcox( It !ass$ecifically found "that $etitioner had no basis forhis claim( ( ( and that he obtained it byextortion(" Rut9in v(+nited ,tates su$ra at $(13&( =oth )ilcox and Rut9in obtained the moneyby means of a criminalactC neither had a bonafide claim of ri#ht to the funds( *3%% +(,(213219? v(Clifford 3-9+(,(33133'(0ndthe Court has #iven a liberal construction to thebroad $hraseolo#y of the "#ross income"definition statutes in reco#nition of the intentionof Con#ress to tax all #ains exce$t thoses$ecifically exem$ted( Commissioner v(;acobson 33% +(,( 2A '9C 2elverin# v(,toc9holmsEns9ilda=an9293+(,( A' A*/91(4he lan#ua#e of 22 (a) of the 1939 Code "#ainsor $rofitsandincomederivedfromanysource!hatever"andthemoresim$lifiedlan#ua#eof%1 (a) of the 19&' Code "all income from!hatever source derived" have been held toencom$ass all "accessions to !ealth clearlyrealized and over !hich the tax$ayers havecom$letedominion("Commissionerv(7lensha!7lass Co( 3'A +(,( '2% '31( 0 #ain "constitutestaxable income !hen its reci$ient has suchcontrol over it that as a$ractical matterhederives readily realizable economic value from it("Rut9in v( +nited ,tates su$ra at $( 13*( +nderthese broad $rinci$les !e believe that$etitioner1s contention that all unla!ful #ains aretaxable exce$t those resultin# fromembezzlement should fail()henatax$ayer acBuiresearnin#s la!fullyorunla!fully !ithout the consensual reco#nitionex$ress or im$lied of an obli#ation to re$ay and!ithout restriction as to their dis$osition "he hasreceived income !hich heis reBuired to returneven thou#h it may still be claimed that he is notentitled to retain the money and even thou#h hemay still be ad5ud#ed liable to restore itseBuivalent(" 3%%+(,(213 22-? yearthetax$ayer must nonetheless re$ort the amount as"#ross income" in the year received( +nited,tatesv(Ee!is su$raC2ealyv(Commissionersu$ra( )e do not believe that Con#ress intendedto treat a la!/brea9in# tax$ayer differently( ;ustas the honest tax$ayer may deduct any amountre$aidinthe year in!hichthe re$ayment ismade the 7overnment $oints out that "If !henand to the extent that the victim recovers bac9themisa$$ro$riatedfundsthereisof courseareductionintheembezzler1sincome(" =rief forthe +nited ,tates $( 2'( 1- .etitioner contends that the )ilcox rule has beeninexistencesince 19'%C that if Con#ress hadintended to chan#e the rule it !ould have donesoC that there !as a #eneral revision of theincome tax la!s in 19&' !ithout mention of theruleC that a bill to chan#e it 11!as introduced inthe Ei#hty/sixth Con#ress but !as not actedu$onCthat therefore !emaynot chan#etherule no!( =ut the fact that Con#ress hasremained silent or has re/enacted a statute !hich!e have construed or that con#ressionalattem$ts to amend a rule announced by thisCourt have failed does not necessarily debar usfromre/examinin# and correctin# the Court1so!nerrors(7irouardv(+nited,tates 32A+(,(%1%9/*-C2elverin#v(2alloc9 3-9+(,( 1-%119/122( 4here may have been any number ofreasons !hy Con#ress acted as it did( 2elverin#v( 2alloc9 su$ra( Fne of the reasons could!ell >3%% +(,( 213 221? be our subseBuentdecisioninRut9in!hichhas beenthou#ht bymany to have re$udiated )ilcox( .articularlymi#ht this be true in li#ht of the decisions of theCourts of 0$$eals !hich have been ridin# anarro!rail bet!eenthet!ocasesandfurtherdistin#uishin# themto the dis$ara#ement of)ilcox( ,ee notes A and 9 su$ra()e believe that )ilcox !as !ron#ly decided and!e find nothin#in con#ressional history sincethento$ersuadeusthat Con#ressintendedtole#islate the rule( 4hus !e believe that !eshouldno!correcttheerrorandtheconfusionresultin# fromit certainly if !e do so in amanner that !illnot $re5udice those !ho mi#hthave relied on it( Cf( 2elverin# v( 2alloc9 su$raat 119( )e should not continue to confoundconfusion $articularly !hen the result !ould beto $er$etuate the in5ustice of relievin#embezzlers of the duty of $ayin# income taxes onthe money they enrich themselves !ith throu#htheft !hile honest $eo$le $ay their taxes onevery conceivable ty$e of income(=ut !e are dealin# here !ith a felony convictionunder statutes!hicha$$lytoany$erson!ho"!illfully" fails to account for his tax or !ho"!illfully" attem$ts toevade his obli#ation( In,$iesv(+nited,tates 31* +(,('92'99 theCourt said that 1'& (b) of the 1939 Codeembodied"the#ravest of offenses a#ainst therevenues" and stated that !illfulness musttherefore include an evil motive and !ant of5ustification in vie! of all the circumstances( Id(at '9A( )illfulness "involves a s$ecific intent!hich must be $roven by inde$endent evidenceand !hich cannot be inferred fromthe mereunderstatement of income(" 2olland v( +nited,tates 3'A +(,( 121 139()e believe that the element of !illfulness couldnot be $roven in a criminal $rosecution for failin#to include embezzled funds in #ross income in theyearof misa$$ro$riationsolon#asthestatutecontained the #loss $laced u$on it by )ilcox atthetimethealle#edcrime!as >3%%+(,( 213222? committed( 4herefore !e feel that$etitioner1s conviction may not stand and that theindictment a#ainst him must be dismissed(,ince :R( ;+,4ICE 20RE0< :R( ;+,4ICE6R0