Facts
The defendant, Eugene James, was an official in a labor union who had embezzled more than $738,000 in union funds, and did not report these amounts on his tax return. He was tried for tax evasion, and claimed in his defense that embezzled funds did not constitute taxable income. His argument was that just as the receipt of loan proceeds is not taxable to the borrower (because of the borrower's corresponding obligation to repay the loan), the person who embezzles money should not be treated as having received income, since that person is legally obligated to return those funds to their rightful owner. Indeed, Eugene James pointed out, the Supreme Court had previously made such a determination in Commissioner v. Wilcox, 327 U.S. 404 (1946). However, this defense was unavailing in the trial court, where Eugene James was convicted and sentenced to three years in prison.
Read more about this topic: James V. United States (1961)
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