Sullivan v. United States

Decision Date19 October 1926
Docket NumberNo. 2507.,2507.
Citation15 F.2d 809
PartiesSULLIVAN v. UNITED STATES.
CourtU.S. Court of Appeals — Fourth Circuit

Frederick W. Aley, of Charleston, S. C., for plaintiff in error.

J. D. E. Meyer, U. S. Atty., of Charleston, S. C. (Louis M. Shimel, Asst. U. S. Atty., of Charleston, S. C., on the brief), for the United States.

Before ROSE and PARKER, Circuit Judges, and SOPER, District Judge.

SOPER, District Judge.

The plaintiff in error, who was defendant below, was convicted in the District Court of the Eastern District of South Carolina under the third count of an indictment which charged a violation of section 253 of the Revenue Act of 1921 (42 Stat. 227, 268 Comp. St. § 6336 1/8v), in that during the year 1921 he had a net income in the total sum of $10,000, from an automobile agency and from the business of selling beverages, and that he willfully refused on March 15, 1922, to make a return to the Collector of Internal Revenue for the Internal Revenue Collection District of South Carolina, stating specifically the items of his gross income and the deductions and credits allowed under the act. There is but one assignment of error, which grows out of the refusal of the District Judge to direct a verdict of acquittal.

Section 253 provides that any person who willfully refuses to make such return shall be guilty of a misdemeanor, and fined not more than $10,000, or imprisoned for not more than one year, or both. Section 223 (42 Stat. 250 Comp. St. § 6336 1/8kk), provides that certain individuals, such as the defendant, shall make, under oath, a return stating specifically the items of their gross incomes and the deductions and credits allowed under the law. No return was made by the defendant, although the evidence shows clearly enough that during the year 1921, he was in receipt of a net income of at least $10,000 from the sale of intoxicating liquors in violation of the National Prohibition Act (Comp. St. § 10138¼ et seq.). But the defendant contends (1) that unlawful gains are not within the meaning of the Revenue Act of 1921 (42 Stat. 227); and (2) that in any event, he was relieved from the duty of making a return by the provision of the Fifth Amendment to the Constitution that no person shall be compelled in any criminal case to be a witness against himself.

It is admitted that Congress has power to tax incomes derived from the unlawful sale of intoxicating liquor (United States v. Yuginovich, 256 U. S. 450, 462, 41 S. Ct. 551, 65 L. Ed. 1043; United States v. Stafoff, 260 U. S. 477, 480, 43 S. Ct. 197, 67 L. Ed. 358), and that such income comes literally within the words employed in section 213 of the act (42 Stat. 237 Comp. St. § 6336 1/8ff), which provides that "the term `gross income' (a) 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."

But the argument is that Congress could not have intended to include within these terms the gains from crime, and thus put legitimate and illegitimate transactions on the same footing. It is pointed out that strong reasons of public policy require that the gains of commercial dealings, which are also criminal, should be regarded as beneath the contempt of the law for purposes of taxation. The inconsistency of the government in prohibiting an act, and at the same time subjecting it to taxation for purposes of revenue is obvious. The difficulty, if not the impropriety, of applying certain administrative sections of the Revenue Act to an illegal business is also manifest. The taxpayer is not only to make a return, stating the items of his income under section 223 as pointed out above, but is required by section 1300 (42 Stat. 308 Comp. St. § 6371 4/5b) to keep such records and render under oath such statements and returns, and to comply with such regulations as the Commissioner of Internal Revenue, with the approval of the Secretary, may from time to time prescribe. The criminal would be compelled to keep a business record of his crime.

Section 214 of the act (42 Stat. 239 Comp. St. § 6336 1/8g), provides for the deductions allowable in computing the net income of the taxpayer, and specifies that they shall include all the ordinary and necessary expenses paid or incurred in carrying on the business; and thus the law would seem to impose upon the government, in order to ascertain the net income of an illicit trade, the duty to examine, if not to allow, such expenses as the bribery of officials and others equally obnoxious. Furthermore, section 1311 (42 Stat. 311 Comp. St. § 5887), reenacts, amongst others, section 3167 of the Revised Statutes, which makes it unlawful (with certain exceptions discussed below), for any collector or officer or employee of the United States to divulge or make known to any person, the amount or source of income set forth or disclosed in any income return, or to permit any return or copy thereof to be seen or examined by any person, and any offense against this provision is a misdemeanor, punishable by fine or imprisonment; and it is suggested that Congress could not have intended to impose upon the agents and employees of the United States, under any circumstances, the obligation to keep secret information of the commission of crime which should come to them in their official capacity.

These considerations, it must be confessed, are persuasive in their force, and it is not surprising that they have led to divergent opinions in the courts which have passed upon the question. The Circuit Court of Appeals of the Second Circuit, in the case of Steinberg v. United States, 14 F.(2d) 564, decided June 1, 1926, has held that the profits from the sale of intoxicating liquor, in violation of the National Prohibition Act, are income within the meaning of the Revenue Act of 1921; but there was a vigorous dissent. Again the Supreme Court of Canada, in the case of the Canadian Minister of Finance v. Smith, 2 D. L. Rep. (1925) 1137, in which precisely the same question was raised, decided that profits from illicit traffic in liquor, forbidden by the laws of the Province of Ontario, were not taxable under the Canadian Income War Tax Act of 1917; but this decision was recently reversed, in the summer of 1926, by a judgment of the Judicial Committee of the Privy Council which declared that it was not only within the power of the Dominion Parliament, but within its intention, to apply the provisions of the law to the profits in question. The weight of authority is therefore against the first contention of the defendant in the case at bar. Moreover, it cannot be said that the dictates of morality or of propriety are all one way. It does not satisfy one's sense of justice to tax persons in legitimate enterprises, and allow those who thrive by violation of the law to escape. It does not seem likely that Congress intended to allow an individual to set up his own wrong in order to avoid taxation, and thereby increase the burdens of others lawfully employed. The problem which Congress had to consider was not so simple as that presented by the case of one whose entire income is earned in a business which offends against a national law of uniform application. Activities lawful in one state of the Union may be unlawful in another. The operations of individual men in the prosecution of their business enterprises are sometimes within and sometimes without the pale of the law. Great aggregations of capital, which have a place in the popular mind, far above the sordid level of the illicit distiller, and the common criminal, sometimes find it profitable to ignore the laws of the state or of the nation. The complexities of the situation are without number. Can it be said that in all such cases Congress intended to tax the law-abiding, and let the criminal go free?

The history of national income tax legislation throws some light on the question. The first income tax law, after the adoption of the Sixteenth Amendment to the federal Constitution, was the Revenue Act of October 3, 1913 (38 Stat. 166). Section B (page 167), provided, amongst other things, that the net income of a taxable person should include 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." The language is somewhat confusing, but it is significant that the word "lawful" has been omitted from the corresponding sections of subsequent revenue acts, including section 213 of the Revenue Act of 1921.

Furthermore the recent congressional legislation in regard to intoxicating liquors, outlined in the cases of United States v. Yuginovich, and United States v. Stafoff, supra, shows that Congress has deliberately taxed what it has also prohibited. In the first case, the Supreme Court decided that section 35, title 2, of the National Prohibition Law (Comp. St. § 10138½v), as respects persons manufacturing spirits for beverage purposes, superseded section 3257 of the Revised Statutes (Comp. St. § 5993), which makes it an offense for a distiller to defraud the United States of a tax on spirits distilled by him, whereupon, as shown by the latter case, Congress passed the Supplementary Act of November 23, 1921 (42 Stat. 223), by which section 3257 and other revenue laws applicable to intoxicating liquors were revived. The Supplementary Prohibition Act and the Revenue Act of 1921 were passed by the same Congress and approved by the President on the same day. Consequently we think that the income from crime is taxable, and find ourselves in...

To continue reading

Request your trial
4 cases
  • California Bankers Association v. Shultz Shultz v. California Bankers Association Stark v. Shultz 8212 985, 72 8212 1073 72 8212 1196
    • United States
    • U.S. Supreme Court
    • 1 April 1974
    ...274 U.S. 259, 47 S.Ct. 607, 71 L.Ed. 1037 (1927), this Court reviewed a judgment of the Court of Appeals for the Fourth Circuit, 15 F.2d 809 (1926), which had held that the Fifth Amendment protected the respondent from being punished for failure to file an income tax return. This Court reve......
  • CALIFORNIA BANKERS ASSN. V. SHULTZ
    • United States
    • U.S. Supreme Court
    • 1 April 1974
    ...In United States v. Sullivan, 274 U. S. 259 (1927), this Court reviewed a judgment of the Court of Appeals for the Fourth Circuit, 15 F.2d 809 (1926), which had held that the Fifth Amendment protected the respondent from being punished for failure to file an income tax return. This Court re......
  • Coleman v. United States
    • United States
    • U.S. Court of Appeals — Sixth Circuit
    • 18 March 1946
    ...Arndstein, 266 U. S. 34, 45 S.Ct. 16, 69 L.Ed. 158; Counselman v. Hitchcock, 142 U.S. 547, 12 S.Ct. 195, 35 L.Ed. 1110; Sullivan v. United States, 4 Cir., 15 F.2d 809; Brown v. Walker, 161 U. S. 591, 16 S.Ct. 644, 40 L.Ed. 819; United States v. Moore, D.C., 15 F.2d 593; Boyd v. United State......
  • State v. Pearson
    • United States
    • Arizona Court of Appeals
    • 8 October 1965
    ...National Prohibition Act. In rejecting the contention of unconstitutionality, which had been upheld by the Circuit Court of Appeals (4 Cir., 15 F.2d 809), the Supreme Court, in an opinion by Justice Holmes, 'If the form of the return provided called for answers that the defendant was privil......

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT