Criminal Tax Evasion and Taxpayer Intent

Stanley A. Leasure, JD, and Debra H. Oden, JD, LLM, CPA

In Boulware v. United States, the United States Supreme Court ruled that a conviction for tax evasion requires proof of a tax deficiency. Furthermore, the court held that in prosecutions predicated on a shareholder's unreported diversion of corporate funds, the characterization of such distributions as nontaxable returns of capital or taxable dividends depends solely upon the existence of corporate earnings and profits and the taxpayer's stock basis, without regard for the taxpayer's intent at the time of the distribution. This ruling resolved a long-standing split between the Circuit Courts of Appeal and has attracted the attention of tax professionals and the white-collar criminal defense bar. Writing for a unanimous court, Justice David Souter summarized the basis for the decision as follows: