366 U.S. 213 (1961)
The petitioner served as a union official during the early 1950s.1 Between 1951 and 1954 he collaborated with another individual to embezzle more than $738,000 from his employer union and from an insurance company that conducted business with the union.2
The petitioner did not include any of the embezzled sums in his gross income returns for those years.3 Federal prosecutors charged him with willfully attempting to evade income taxes for each year from 1951 through 1954 in violation of section 145(b) of the 1939 Code and section 7201 of the 1954 Code.4
After a bench trial the district court found the petitioner guilty on all counts and imposed an aggregate sentence of three years' imprisonment.5 The Court of Appeals for the Seventh Circuit affirmed the convictions in a brief per curiam opinion reported at 273 F.2d 5.6
Because the facts were identical to those in Commissioner v. Wilcox, 327 U.S. 404, which had held that embezzled funds are not taxable income, the Supreme Court granted certiorari to resolve the acknowledged conflict among lower courts and to reconsider the continuing vitality of Wilcox.7
Whether embezzled funds are to be included in the gross income of the embezzler in the year in which the funds are misappropriated under the Internal Revenue Code of 1939 and the Internal Revenue Code of 1954?8
Gross income under sections 22(a) of the 1939 Code and 61(a) of the 1954 Code includes all accessions to wealth clearly realized and over which the taxpayer has complete dominion.9 The definition reaches gains from any source whatever, whether lawful or unlawful.10 Neither the presence nor the absence of a bona fide claim of right or an unconditional obligation to repay determines taxability.11
Yes. The petitioner, a union official, together with another person embezzled in excess of $738,000 during 1951 through 1954 from his employer union and an insurance company.12 He acquired the funds without any consensual recognition of an obligation to repay and exercised complete dominion by failing to report them.13 These facts establish that the petitioner realized taxable gross income under the broad statutory definitions as construed in Glenshaw Glass and Rutkin.14
Embezzled funds are included in the embezzler's gross income in the year of misappropriation, and Commissioner v. Wilcox is overruled.15
Related opinions on this issue
Joined by Justice Douglas
Justice Black, joined by Justice Douglas, maintained that the Wilcox decision was correctly decided because an embezzlement does not produce taxable gain to the embezzler.16 The embezzled property continues to belong to the victim, and the embezzler is at all times under an unconditional duty to restore it.17 Black argued that the majority's prospective overruling of Wilcox constituted an improper form of judicial legislation that effectively created a new crime applicable only to future conduct.18
He emphasized that such an approach raises serious questions of unconstitutional vagueness in criminal statutes and that courts should not engage in prospective lawmaking in the criminal field.19 Black further noted that Congress had repeatedly declined to alter the Wilcox interpretation despite numerous opportunities, including the comprehensive revision of the Internal Revenue Code in 1954.20 He concluded that the Court should reaffirm Wilcox and reverse the conviction.21
Justice Clark concurred in the overruling of Wilcox but dissented from the disposition of the case.22 He believed that the Court had already devitalized Wilcox in the Rutkin decision by limiting it to its facts and had effectively overruled it sub silentio in Glenshaw Glass.23 Clark concluded that the petitioner had placed no bona fide reliance on the Wilcox precedent.24
He found that the record conclusively demonstrated that the petitioner willfully failed to report his income without any good faith reliance on the prior decision.25 Therefore Clark would have affirmed the conviction on the ground that willfulness was established independently of the Wilcox gloss.26
Joined by Justice Frankfurter
Justice Harlan, joined by Justice Frankfurter, agreed that Wilcox must be overruled because it was wrongly decided.27 However, he concluded that the proper disposition was to reverse the conviction and remand for a new trial rather than outright dismissal of the indictment.28 Harlan reasoned that the element of willfulness required the trier of fact to consider the petitioner's possible reliance on the Wilcox doctrine when determining whether the conduct was willful.29
He emphasized that the failure to instruct on this factor constituted plain error under the Federal Rules of Criminal Procedure.30 Harlan argued that an outright reversal was unwarranted because the government should have the opportunity to prove willfulness on a proper record that accounts for the prior precedent.31
Joined by Justices Black And Douglas
Justice Whittaker, joined by Justices Black and Douglas, dissented from the majority's holding that embezzlement produces taxable income in the year of the taking.32 He reasoned that the Sixteenth Amendment and prior controlling decisions require an accession to wealth that is free of an unconditional obligation to repay the victim.33 Whittaker explained that no taxable event occurs until the debt is discharged for less than full value, such as by a release or the running of a statute of limitations.34
He concluded that the conviction should be reversed because the premise that embezzlement creates immediate taxable income was incorrect under established tax principles.35
Whether the petitioner's conviction for willfully attempting to evade federal income taxes by failing to report embezzled funds can stand when the conduct occurred while Commissioner v. Wilcox remained the law?38
A criminal tax conviction under sections 145(b) of the 1939 Code and 7201 of the 1954 Code requires proof of willfulness.39 Willfulness encompasses an evil motive and want of justification in view of all the circumstances.40 When the governing precedent at the time of the conduct placed a gloss on the statute that negated tax liability, willfulness cannot be established as a matter of law.41
No. The petitioner's embezzlement and failure to report occurred during 1951 through 1954 while Wilcox remained the law.42 The element of willfulness therefore could not be proven.43 The statute carried the gloss of that precedent at the time the alleged crimes were committed.44 Because willfulness requires proof of an evil motive and want of justification in view of all circumstances, including any reliance on existing judicial interpretations, the government could not meet its burden when the conduct took place under the Wilcox gloss that negated tax liability for embezzled funds.45
The conviction cannot stand and the indictment must be dismissed.46
Related opinions on this issue
Joined by Justice Douglas
Justice Black, joined by Justice Douglas, argued that the majority's prospective overruling of Wilcox created an impermissible judicial crime.47 He noted that the approach left the civil and criminal liability of past embezzlers in unacceptable confusion because it was unclear whether prior conduct could be prosecuted.48 Black stressed that judge-made criminal liability violates fundamental principles of due process and that criminal statutes must be strictly construed.49
He concluded that the Court had improperly amended the statute rather than interpreted it.50
Justice Clark would have affirmed the conviction on the ground that the petitioner placed no bona fide reliance on Wilcox.51 He concluded that the record conclusively established willfulness independent of the prior precedent.52 Clark found that the proof showed the petitioner willfully failed to report income without any good faith belief that Wilcox protected the conduct.53
Therefore he would have sustained the conviction despite the overruling of Wilcox.54 Clark viewed the evidence as demonstrating a conscious attempt to evade tax obligations that stood apart from any reliance on the overruled precedent.
Joined by Justice Frankfurter
Justice Harlan, joined by Justice Frankfurter, concluded that the failure to instruct on possible reliance on Wilcox constituted plain error.55 He determined that reversal and remand for a new trial was required rather than outright dismissal of the indictment.56 Harlan reasoned that the trier of fact must consider the petitioner's possible reliance on the prior precedent when assessing willfulness.57
He emphasized that the government should have an opportunity to prove willfulness on a properly instructed record.58
Joined by Justices Black And Douglas
Justice Whittaker concurred in the judgment reversing the conviction because the underlying premise that embezzlement produces taxable income was incorrect.59 He joined the view that the conviction could not stand under the circumstances presented by the Wilcox gloss.60 Whittaker reasoned that since no taxable income arose from the embezzlement, there could be no willful evasion of tax liability during the years in question.61
He therefore supported reversal on the ground that the statutory definition of income had been misapplied from the outset.
Joined by Justice Harlan
Justice Frankfurter joined Justice Harlan in concluding that rather than an outright reversal the reversal should be for a new trial.62