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U.S. Supreme Court

High Court Rules for Taxpayer, Ditches 9th Circuit ‘Contemporanous Intent’ Rule

Posted Mar 3, 2008 11:28 AM CDT
By Debra Cassens Weiss

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The U.S. Supreme Court has ruled in favor of a convicted taxpayer who claimed he owed no taxes on a distribution from his corporation because it had no earnings and no profits, SCOTUSblog reports.

The court said taxpayer Michael Boulware should have been allowed to argue that the money should be treated as a nontaxable return of capital without producing evidence that he or his corporation intended it to be used that way, SCOTUSblog reports.

The government had contended Boulware diverted millions of dollars to support a lavish lifestyle and failed to pay taxes on the money. He was convicted and sentenced to five years in prison, the Wall Street Journal reports (sub. req.).

Justice David H. Souter wrote for a unanimous court in the case, Boulware v. United States (PDF posted by SCOTUSblog). He said a previous 9th Circuit opinion, United States v. Miller, “erred in requiring a contemporaneous intent to treat the receipt of corporate funds as a return of capital, and the judgment of the court of appeals here, relying on Miller, is likewise erroneous.”

The Tax Problem Attorney Blog has written that the 1976 Miller decision permitted differing “contemporaneous intent” requirements in civil and criminal cases. As a result, a taxpayer in the 9th Circuit could be sentenced to prison for failing to pay taxes even if the U.S. Tax Court found that no taxes were owed.


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