Commissioner v. Wilcox, 327 U.S. 404 (1946)

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Commissioner v. Wilcox

No. 163

Argued January 8, 1946
Decided February 25, 1946
327 U.S. 404

CERTIORARI TO THE CIRCUIT COURT OF APPEALS

FOR THE NINTH CIRCUIT

Syllabus

1. Embezzled money does not constitute taxable income to the embezzler under § 22(a) of the Internal Revenue Code, which defines "gross income" as including "gains or profits and income derived from any source whatever." P. 408.

2. 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, unconditional obligation to repay or return that which would otherwise constitute a gain. P. 408.

3. Where an embezzler receives the embezzled money without any semblance of a bona fide claim of right and remains under an unqualified duty and obligation to repay, the embezzled money does not constitute taxable income. P. 408.

4. This conclusion is not altered by the fact that the taxpayer dissipated all of the embezzled funds, since the loss or dissipation of embezzled money cannot create taxable income to an embezzler any more than the insolvency or bankruptcy of a borrower causes the loans to be treated as taxable income to the borrower. P. 409.

5. The fact that a theft or loan may give rise to a deductible loss to the owner of the money does not create taxable income to the embezzler or the borrower. P. 409.

6. The Tax Court’s determination that the embezzled money constituted taxable income to the embezzler involved a clear-cut mistake of law, and the circuit court of appeals was justified in reversing the Tax Court’s decision. P. 410.

148 F.2d 933, affirmed.

The Commissioner of Internal Revenue determined that respondent was required to report as income certain money which he had embezzled, and assessed an income tax deficiency against him. The Tax Court sustained the Commissioner. The circuit court of appeals reversed. 148 F.2d 933. This Court granted certiorari. 326 U.S. 701. Affirmed, p. 410.