BOULWARE v. UNITED STATES

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BOULWARE v. UNITED STATES
certiorari to the united states court of appeals for
the ninth circuit
No. 06–1509. Argued January 8, 2008—Decided March 3, 2008
One element of tax evasion under 26 U. S. C. § 7201 is “the existence of a
tax deficiency.” Sansone v. United States, 380 U. S. 343, 351. Peti
tioner Boulware was charged with criminal tax evasion and filing a false
income tax return for diverting funds from a closely held corporation,
HIE, of which he was the president, founder, and controlling share
holder. To support his argument that the Government could not estab
lish the tax deficiency required to convict him, Boulware sought to intro
duce evidence that HIE had no earnings and profits in the relevant
taxable years, so he in effect received distributions of property that
were returns of capital, up to his basis in his stock, which are not tax
able, see 26 U. S. C. §§ 301 and 316(a). Under § 301(a), unless the Inter
nal Revenue Code requires otherwise, a “distribution of property”
“made by a corporation to a shareholder with respect to its stock shall
be treated in the manner provided in [§ 301(c)].” Section 301(c) pro
vides that the portion of the distribution that is a “dividend,” as defined
by § 316(a), must be included in the recipient’s gross income; and the
portion that is not a dividend is, depending on the shareholder’s basis
for his stock, either a nontaxable return of capital or a taxable capital
gain. Section 316(a) defines “dividend” as a “distribution” out of “earn
ings and profits.” The District Court granted the Government’s in
limine motion to bar evidence supporting Boulware’s return-of-capital
theory, relying on the Ninth Circuit’s Miller decision that a diversion of
funds in a criminal tax evasion case may be deemed a return of capital
only if the taxpayer or corporation demonstrates that the distributions
were intended to be such a return. The court later found Boulware’s
proffer of evidence insufficient under Miller and declined to instruct the
jury on his theory. In affirming his conviction, the Ninth Circuit held
that Boulware’s proffer was properly rejected under Miller because he
offered no proof that the amounts diverted were intended as a return
of capital when they were made.
Held: A distributee accused of criminal tax evasion may claim return-of
capital treatment without producing evidence that, when the distribu
tion occurred, either he or the corporation intended a return of capital.
Pp. 429–439.

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(a) Tax classifications like “dividend” and “return of capital” turn on
a transaction’s “objective economic realities,” not “the particular form
the parties employed.” Frank Lyon Co. v. United States, 435 U. S. 561,
573. In economic reality, a shareholder’s informal receipt of corporate
property “may be as effective a means of distributing profits among
stockholders as the formal declaration of a dividend,” Palmer v. Com
missioner, 302 U. S. 63, 69, or as effective a means of returning a share
holder’s capital, see ibid. Economic substance remains the touchstone
for characterizing funds that a shareholder diverts before they can be
recorded on a corporation’s books. Pp. 429–430.
(b) Miller’s view that a return-of-capital defense requires evidence of
a corresponding contemporaneous intent sits uncomfortably not only
with the tax law’s economic realism, but also with the particular word
ing of §§ 301 and 316(a). As these sections are written, the tax conse
quences of a corporation’s distribution made with respect to stock
depend, not on anyone’s purpose to return capital or get it back, but on
facts wholly independent of intent: whether the corporation had earn
ings and profits, and the amount of the taxpayer’s basis for his stock.
The Miller court could claim no textual hook for its contemporaneous
intent requirement, but argued that it avoided supposed anomalies.
The court, however, mistakenly reasoned that applying §§ 301 and 316(a)
in criminal cases unnecessarily emphasizes the deficiency’s amount while
ignoring the willfulness of the intent to evade taxes. Willfulness is an
element of the crimes because the substantive provisions defining tax
evasion and filing a false return expressly require it, see, e. g., § 7201.
Nothing in §§ 301 and 316(a) relieves the Government of the burden of
proving willfulness or impedes it from doing so if there is evidence of
willfulness. The Miller court also erred in finding it troublesome that,
without a contemporaneous intent requirement, a shareholder distribu
tee would be immune from punishment if the corporation had no earn
ings and profits but convicted if the corporation did have earning and
profits. An acquittal in the former instance would in fact result merely
from the Government’s failure to prove an element of the crime. The
fact that a shareholder of a successful corporation may have different
tax liability from a shareholder of a corporation without earnings and
profits merely follows from the way §§ 301 and 316(a) are written and
from § 7201’s tax deficiency requirement. Even if there were compel
ling reasons to extend § 7201 to cases in which no taxes are owed, Con
gress, not the Judiciary, would have to do the rewriting. Pp. 430–434.
(c) Miller also suffers from its own anomalies. First, §§ 301 and 316
are odd stalks for grafting a contemporaneous intent requirement.
Correct application of their rules will often become possible only at the
end of the corporation’s tax year, regardless of the shareholder or corpo

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ration’s understanding months earlier when a particular distribution
may have been made. Moreover, § 301(a), which expressly provides
that distributions made with respect to stock “shall be treated in the
manner provided in [§ 301(c)],” ostensibly provides for all variations of
tax treatment of such distributions unless a separate Code provision
requires otherwise. Yet Miller effectively converts the section into one
of merely partial coverage, leaving the tax status of one class of distri
butions in limbo in criminal cases. Allowing § 61(a) of the Code, which
defines gross income, “[e]xcept as otherwise provided,” as “all income
from whatever source derived,” to step in where § 301(a) has been
pushed aside would sanction yet another eccentricity: § 301(a) would not
cover what it says it “shall” (distributions with respect to stock for
which no more specific provision is made), while § 61(a) would have to
apply to what by its terms it should not (a receipt of funds for which
tax treatment is “otherwise provided” in § 301(a)). Miller erred in re
quiring contemporaneous intent, and the Ninth Circuit’s judgment here,
relying on Miller, is likewise erroneous. Pp. 434–436.
(d) This Court declines to address the Government’s argument that
the judgment should be affirmed on the ground that before any distribu
tion may be treated as a return of capital, it must first be distributed to
the shareholder “with respect to . . . stock.” The facts in this case have
not been raked over with that condition in mind, and any canvas of
evidence and Boulware’s proffer should be made by a court familiar with
the entire evidentiary record. Nor will the Court take up in the first
instance the question whether an unlawful diversion may ever be
deemed a “distribution . . . with respect to [a corporation’s] stock.”
Pp. 436–439.
470 F. 3d 931, vacated and remanded.
Souter, J., delivered the opinion for a unanimous Court.
John D. Cline argued the cause for petitioner. With him
on the briefs was C. Kevin Marshall.
Deanne E. Maynard argued the cause for the United
States. With her on the brief were Solicitor General Clem
ent, Acting Assistant Attorney General Morrison, Deputy
Solicitor General Dreeben, Alan Hechtkopf, Karen Quesnel,
and S. Robert Lyons.*
*John L. Pollok and Joshua L. Dratel filed a brief for the National
Association of Criminal Defense Lawyers as amicus curiae.

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Justice Souter delivered the opinion of the Court.
Sections 301 and 316(a) of the Internal Revenue Code set
the conditions for treating certain corporate distributions as
returns of capital, nontaxable to the recipient. 26 U. S. C.
§§ 301, 316(a) (2000 ed. and Supp. V). The question here is
whether a distributee accused of criminal tax evasion may
claim return-of-capital treatment without producing evi
dence that either he or the corporation intended a capital
return when the distribution occurred. We hold that no
such showing is required.
I
“[T]he capstone of [the] system of sanctions . . . calculated
to induce . . . fulfillment of every duty under the income tax
law,” Spies v. United States, 317 U. S. 492, 497 (1943), is 26
U. S. C. § 7201, making it a felony willfully to “attemp[t] in
any manner to evade or defeat any tax imposed by” the
Code.1 One element of tax evasion under § 7201 is “the ex
istence of a tax deficiency,” Sansone v. United States, 380
U. S. 343, 351 (1965); see also Lawn v. United States, 355
U. S. 339, 361 (1958),2 which the Government must prove be
yond a reasonable doubt, see ibid. (“[O]f course, a conviction
upon a charge of attempting to evade assessment of income
taxes by the filing of a fraudulent return cannot stand in the
absence of proof of a deficiency”).
Any deficiency determination in this case will turn on
§§ 301 and 316(a) of the Code. According to § 301(a), unless
another provision of the Code requires otherwise, a “distri
1 A related provision, 26 U. S. C. § 7206(1), criminalizes the willful filing
of a tax return believed to be materially false. See n. 9, infra.
2 “[T]he elements of § 7201 are willfulness[,] the existence of a tax
deficiency, . . . and an affirmative act constituting an evasion or attempted
evasion of the tax.” Sansone v. United States, 380 U. S. 343, 351 (1965).
The Courts of Appeals have divided over whether the Government must
prove the tax deficiency is “substantial,” see United States v. Daniels, 387
F. 3d 636, 640–641, and n. 2 (CA7 2004) (collecting cases); we do not address
that issue here.

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bution of property” that is “made by a corporation to a share
holder with respect to its stock shall be treated in the man
ner provided in [§ 301(c)].” Under § 301(c), the portion of the
distribution that is a “dividend,” as defined by § 316(a), must
be included in the recipient’s gross income; and the portion
that is not a dividend is, depending on the shareholder’s basis
for his stock, either a nontaxable return of capital or a gain
on the sale or exchange of stock, ordinarily taxable to the
shareholder as a capital gain. Finally, § 316(a) defines “divi
dend” as
“any distribution of property made by a corporation to
its shareholders—
“(1) out of its earnings and profits accumulated after
February 28, 1913, or
“(2) out of its earnings and profits of the taxable year
(computed as of the close of the taxable year without
diminution by reason of any distributions made during
the taxable year), without regard to the amount of the
earnings and profits at the time the distribution was
made.”
Sections 301 and 316(a) together thus make the existence of
“earnings and profits” 3 the decisive fact in determining the
tax consequences of distributions from a corporation to a
shareholder with respect to his stock. This requirement of
“relating the tax status of corporate distributions to earnings
and profits is responsive to a felt need for protecting returns
of capital from tax.” 4 Bittker & Lokken ¶ 92.1.1, at 92–3.
II
In this criminal tax proceeding, petitioner Michael Boul
ware was charged with several counts of tax evasion and
3 Although the Code does not “comprehensively define ‘earnings and
profits,’ ” 4 B. Bittker & L. Lokken, Federal Taxation of Income, Estates
and Gifts ¶ 92.1.3, p. 92–6 (3d ed. 2003) (hereinafter Bittker & Lokken), the
“[p]rovisions of the Code and regulations relating to earnings and profits
ordinarily take taxable income as the point of departure,” id., at 92–9.

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filing a false income tax return, stemming from his diversion
of funds from Hawaiian Isles Enterprises (HIE), a closely
held corporation of which he was the president, founder, and
controlling (though not sole) shareholder. At trial,4 the
United States sought to establish that Boulware had re
ceived taxable income by “systematically divert[ing] funds
from HIE in order to support a lavish lifestyle.” 384 F. 3d
794, 799 (CA9 2004). The Government’s evidence showed
that
“[Boulware] gave millions of dollars of HIE money to
his girlfriend . . . and millions of dollars to his wife . . .
without reporting any of this money on his personal in
come tax returns. . . . [H]e siphoned off this money pri
marily by writing checks to employees and friends and
having them return the cash to him, by diverting pay
ments by HIE customers, by submitting fraudulent in
voices to HIE, and by laundering HIE money through
companies in the Kingdom of Tonga and Hong Kong.”
Ibid.
In defense, Boulware sought to introduce evidence that HIE
had no retained or current earnings and profits in the rele
vant taxable years, with the consequence (he argued) that
he in effect received distributions of property that must have
been returns of capital, up to his basis in his stock. See
§ 301(c)(2). Because the return of capital was nontaxable,
the argument went, the Government could not establish the
tax deficiency required to convict him.
4 The trial at issue in this case was actually Boulware’s second trial on
§§ 7201 and 7206(1) charges, his convictions on those counts in an earlier
trial having been vacated by the Ninth Circuit for reasons not at issue
here, see 384 F. 3d 794 (2004). In that earlier trial, Boulware was also
convicted of conspiracy to make false statements to a federally insured
financial institution, in violation of 18 U. S. C. § 371. The Ninth Circuit
affirmed Boulware’s conspiracy conviction that first time around, however,
so the present trial did not include a conspiracy charge.

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The Government moved in limine to bar evidence in sup
port of Boulware’s return-of-capital theory, on the grounds
of “irrelevan[ce] in [this] criminal tax case,” App. 20. The
Government relied on the Ninth Circuit’s decision in United
States v. Miller, 545 F. 2d 1204 (1976), in which that court
held that in a criminal tax evasion case, a diversion of funds
may be deemed a return of capital only after “some demon
stration on the part of the taxpayer and/or the corporation
that such [a distribution was] intended to be such a return,”
id., at 1215. Boulware, the Government argued, had offered
to make no such demonstration. App. 21.
The District Court granted the Government’s motion, and
when Boulware sought “to present evidence of [HIE’s] al
leged over-reporting of income, and an offer of proof relating
to the issue of . . . dividends,” id., at 135, the District Court
denied his request. The court said that “[n]ot only would
much of [his proffered] evidence be excludable as expert
legal opinion, it is plainly insufficient under the Miller case,”
id., at 138, and accordingly declined to instruct the jury on
Boulware’s return-of-capital theory. The jury rejected his
alternative defenses (that the diverted funds were nontax
able corporate advances or loans, or that he used the moneys
for corporate purposes), and found him guilty on nine counts,
four of tax evasion and five of filing a false return.
The Ninth Circuit affirmed. 470 F. 3d 931 (2006). It ac
knowledged that “imposing an intent requirement creates a
disconnect between civil and criminal liability,” but thought
that under Miller, “the characterization of diverted corpo
rate funds for civil tax purposes does not dictate their char
acterization for purposes of a criminal tax evasion charge.”
470 F. 3d, at 934. The court held the test in a criminal case
to be “whether the defendant has willfully attempted to
evade the payment or assessment of a tax.” Ibid. Because
Boulware “ ‘presented no concrete proof that the amounts
were considered, intended, or recorded on the corporate rec

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ords as a return of capital at the time they were made,’ ” id.,
at 935 (quoting Miller, supra, at 1215), the Ninth Circuit held
that Boulware’s proffer was “properly rejected . . . as inade
quate,” 470 F. 3d, at 935.
Judge Thomas concurred because the panel was bound by
Miller, but noted that “Miller—and now the majority opin
ion—hold that a defendant may be criminally sanctioned for
tax evasion without owing a penny in taxes to the govern
ment.” 470 F. 3d, at 938. That, he said, not only “indi
cate[s] a logical fallacy, but is in flat contradiction with the
tax evasion statute’s requirement . . . of a tax deficiency.”
Ibid. (internal quotation marks omitted).5
We granted certiorari, 551 U. S. 1191 (2007), to resolve a
split among the Courts of Appeals over the application of
§§ 301 and 316(a) to informally transferred or diverted corpo
rate funds in criminal tax proceedings.6 We now vacate
and remand.
5 Judge Thomas went on to say that the Government would prevail even
without Miller’s rule because, in his view, Boulware’s diversions were “un
lawful,” and the return-of-capital rules would not apply to diversions made
for unlawful purposes. See 470 F. 3d, at 938–939.
6 As noted, the Ninth Circuit holds that §§ 301 and 316(a) are not to be
consulted in a criminal tax evasion case until the defendant produces evi
dence of an intent to treat diverted funds as a return of capital at the time
it was made. See 470 F. 3d 931 (2006) (case below). By contrast, the
Second Circuit allows a criminal defendant to invoke §§ 301 and 316(a)
without evidence of a contemporaneous intent to treat such moneys as
returns of capital. See United States v. Bok, 156 F. 3d 157, 162 (1998)
(“[I]n return of capital cases, a taxpayer’s intent is not determinative in
defining the taxpayer’s conduct”). Meanwhile, the Third, Sixth, and Elev
enth Circuits arguably have taken the position that §§ 301 and 316(a) are
altogether inapplicable in criminal tax cases involving informal distribu
tions. See United States v. Williams, 875 F. 2d 846, 850–852 (CA11 1989);
United States v. Goldberg, 330 F. 2d 30, 38 (CA3 1964); Davis v. United
States, 226 F. 2d 331, 334–335 (CA6 1955); but see Brief for Petitioner 16
(“[T]hese cases can be read to address the allocation of the burden of proof
on the return of capital issue, rather than the applicable substantive
principles”).

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Opinion of the Court
III
A
The colorful behavior described in the allegations requires
a reminder that tax classifications like “dividend” and “re
turn of capital” turn on “the objective economic realities of
a transaction rather than . . . the particular form the parties
employed,” Frank Lyon Co. v. United States, 435 U. S. 561,
573 (1978); a “given result at the end of a straight path is not
made a different result . . . by following a devious path,”
Minnesota Tea Co. v. Helvering, 302 U. S. 609, 613 (1938).7
As for distributions with respect to stock, in economic reality
a shareholder’s informal receipt of corporate property “may
be as effective a means of distributing profits among stock
holders as the formal declaration of a dividend,” Palmer v.
Commissioner, 302 U. S. 63, 69 (1937), or as effective a means
of returning a shareholder’s capital, see ibid. Accordingly,
“[a] distribution to a shareholder in his capacity as such . . .
7 We have also recognized that “[t]he legal right of a taxpayer to
decrease the amount of what otherwise would be his taxes, or altogether
avoid them, by means which the law permits, cannot be doubted.”
Gregory v. Helvering, 293 U. S. 465, 469 (1935). The rule is a two-way
street: “while a taxpayer is free to organize his affairs as he chooses, nev
ertheless, once having done so, he must accept the tax consequences of his
choice, whether contemplated or not, . . . and may not enjoy the benefit of
some other route he might have chosen to follow but did not,” Commis
sioner v. National Alfalfa Dehydrating & Milling Co., 417 U. S. 134, 149
(1974); see also id., at 148 (referring to “the established tax principle that
a transaction is to be given its tax effect in accord with what actually
occurred and not in accord with what might have occurred”); Founders
Gen. Corp. v. Hoey, 300 U. S. 268, 275 (1937) (“To make the taxability of
the transaction depend upon the determination whether there existed an
alternative form which the statute did not tax would create burden and
uncertainty”). The question here, of course, is not whether alternative
routes may have offered better or worse tax consequences, see generally
Isenbergh, Review: Musings on Form and Substance in Taxation, 49
U. Chi. L. Rev. 859 (1982); rather, it is “whether what was done . . . was
the thing which the statute[, here §§ 301 and 316(a),] intended,” Gregory,
supra, at 469.

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is subject to § 301 even though it is not declared in formal
fashion.” B. Bittker & J. Eustice, Federal Income Taxation
of Corporations and Shareholders ¶ 8.05[1], pp. 8–36 to 8–37
(6th ed. 1999) (hereinafter Bittker & Eustice); see also Gard
ner, The Tax Consequences of Shareholder Diversions in
Close Corporations, 21 Tax L. Rev. 223, 239 (1966) (herein
after Gardner) (“Sections 316 and 301 do not require any
formal path to be taken by a corporation in order for those
provisions to apply”).
There is no reason to doubt that economic substance re
mains the right touchstone for characterizing funds received
when a shareholder diverts them before they can be recorded
on the corporation’s books. While they “never even pass
through the corporation’s hands,” Bittker & Eustice ¶ 8.05[9],
at 8–51, even diverted funds may be seen as dividends or
capital distributions for purposes of §§ 301 and 316(a), see
Truesdell v. Commissioner, 89 T. C. 1280 (1987) (treating di
verted funds as “constructive” distributions in civil tax pro
ceedings). The point, again, is that “taxation is not so much
concerned with the refinements of title as it is with actual
command over the property taxed—the actual benefit for
which the tax is paid.” Corliss v. Bowers, 281 U. S. 376,
378 (1930); see also Griffiths v. Commissioner, 308 U. S. 355,
358 (1939).8
B
Miller’s view that a criminal defendant may not treat a
distribution as a return of capital without evidence of a cor
8 Thus in the period between this Court’s decisions in Commissioner v.
Wilcox, 327 U. S. 404 (1946) (holding embezzled funds to be nontaxable to
the embezzler), and James v. United States, 366 U. S. 213 (1961) (overrul
ing Wilcox, holding embezzled funds to be taxable income), the Govern
ment routinely argued that diverted funds were “constructive distribu
tions,” taxable to the recipient as dividends. See generally Gardner 237
(“While Wilcox was good law, the safest way to insure that both the corpo
ration and the shareholder would be taxed on their respective gain from
the diverted funds was to label them dividends”); 4 Bittker & Lokken
¶ 92.2(7), at 92–23, n. 37.

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responding contemporaneous intent sits uncomfortably not
only with the tax law’s economic realism, but with the partic
ular wording of §§ 301 and 316(a), as well. As those sections
are written, the tax consequences of a “distribution by a cor
poration with respect to its stock” depend, not on anyone’s
purpose to return capital or to get it back, but on facts
wholly independent of intent: whether the corporation had
earnings and profits, and the amount of the taxpayer’s basis
for his stock. Cf. Truesdell v. Commissioner, Internal Rev
enue Service (IRS) Action on Decision 1988–25, 1988 WL
570761 (Sept. 12, 1988) (recommendation regarding acquies
cence), IRS Non Docketed Service Advice Review, 1989 WL
1172952 (Mar. 15, 1989) (reply to request for reconsideration)
(“[I]ntent is irrelevant. . . . [E]very distribution made with
respect to a shareholder’s stock is taxable as ordinary in
come, capital gain, or not at all pursuant to section 301(c)
dependent upon the corporation’s earnings and profits and
the shareholder’s stock basis. The determination is compu
tational and not dependent upon intent”).
When the Miller court went the other way, needless to
say, it could claim no textual hook for the contemporaneous
intent requirement, but argued for it as the way to avoid two
supposed anomalies. First, the court thought that applying
§§ 301 and 316(a) in criminal cases unnecessarily emphasizes
the exact amount of deficiency while “completely ignor[ing]
one essential element of the crime charged: the willful intent
to evade taxes . . . .” 545 F. 2d, at 1214. But there is an
analytical mistake here. Willfulness is an element of the
crimes charged because the substantive provisions defining
tax evasion and filing a false return expressly require it, see
§ 7201 (“[a]ny person who willfully attempts . . . ”); § 7206(1)
(“[w]illfully makes and subscribes . . . ”). The element of
willfulness is addressed at trial by requiring the Government
to prove it. Nothing in §§ 301 and 316(a) as written (that is,
without an intent requirement) relieves the Government of
this burden of proving willfulness or impedes it from doing

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so if evidence of willfulness is there. Those two sections as
written simply address a different element of criminal eva
sion, the existence of a tax deficiency, and both deficiency
and willfulness can be addressed straightforwardly (in jury
instructions or bench findings) without tacking an intent re
quirement onto the rule distinguishing dividends from capi
tal returns.
Second, the Miller court worried that if a defendant could
claim capital treatment without showing a corresponding and
contemporaneous intent,
“[a] taxpayer who diverted funds from his close corpora
tion when it was in the midst of a financial difficulty
and had no earnings and profits would be immune from
punishment (to the extent of his basis in the stock) for
failure to report such sums as income; while that very
same taxpayer would be convicted if the corporation had
experienced a successful year and had earnings and
profits.” 545 F. 2d, at 1214.
“Such a result,” said the court, “would constitute an extreme
example of form over substance.” Ibid. The Circuit thus
assumed that a taxpayer like Boulware could be convicted of
evasion with no showing of deficiency from an unreported
dividend or capital gain.
But the acquittal that the author of Miller called form
trumping substance would in fact result from the Govern
ment’s failure to prove an element of the crime. There is no
criminal tax evasion without a tax deficiency, see supra, at
424,9 and there is no deficiency owing to a distribution (re
9 Boulware was also convicted of violating § 7206(1), which makes it a
felony “[w]illfully [to] mak[e] and subscrib[e] any return, statement, or
other document, which contains or is verified by a written declaration that
it is made under the penalties of perjury, and which [the taxpayer] does
not believe to be true and correct as to every material matter.” He ar
gues that if the Ninth Circuit erred, its error calls into question not only
his § 7201 conviction, but his § 7206(1) conviction as well. Brief for Peti
tioner 15–16. Although the Courts of Appeals are unanimous in holding
that § 7206(1) “does not require the prosecution to prove the existence of

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ceived with respect to a corporation’s stock) if a corporation
has no earnings and profits and the value distributed does
not exceed the taxpayer-shareholder’s basis for his stock.
Thus the fact that a shareholder distributee of a successful
corporation may have different tax liability from a share
holder of a corporation without earnings and profits merely
follows from the way §§ 301 and 316(a) are written (to distin
guish dividend from capital return), and from the require
ment of tax deficiency for a § 7201 crime. Without the defi
ciency there is nothing but some act expressing the will to
evade, and, under § 7201, acting on “bad intentions, alone, [is]
not punishable,” United States v. D’Agostino, 145 F. 3d 69,
73 (CA2 1998).
It is neither here nor there whether the Miller court was
justified in thinking it would improve things to convict more
of the evasively inclined by dropping the deficiency require
ment and finding some other device to exempt returns of
capital.10 Even if there were compelling reasons to extend
a tax deficiency,” United States v. Tarwater, 308 F. 3d 494, 504 (CA6 2002);
see also United States v. Peters, 153 F. 3d 445, 461 (CA7 1998) (collecting
cases), it is arguable that “the nature and character of the funds received
can be critical in determining whether . . . § 7206(1) has been violated,
[even if] proof of a tax deficiency is unnecessary,” 1 I. Comisky, L. Feld, &
S. Harris, Tax Fraud & Evasion ¶ 2.03[5], p. 21 (2007); see also Brief for
Petitioner 15–16. The Government does not argue that Boulware’s
§§ 7201 and 7206(1) convictions should be treated differently at this stage
of the proceedings, however, and we will accede to the Government’s
working assumption here that the §§ 7201 and 7206(1) convictions stand or
fall together.
10 “A better [method of exempting returns of capital from taxation] could
no doubt be devised.” 4 Bittker & Lokken ¶ 92.1.1, at 92–3; see ibid.
(suggesting, for example, that “all receipts from a corporation could be
treated as taxable income, and a correction for any resulting overtaxation
could be made in computing gain or loss when stock is sold, exchanged, or
becomes worthless”); see also Andrews, “Out of its Earnings and Profits”:
Some Reflections on the Taxation of Dividends, 69 Harv. L. Rev. 1403,
1439 (1956) (criticizing the earnings and profits concept “[a]s a device for
separating income from return of capital,” and suggesting that “[d]istribu
tions which ought to be treated as return of capital [could] be brought
within the concept of a partial liquidation by special provision”).

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§ 7201 to cases in which no taxes are owed, it bears repeating
that “[t]he spirit of the doctrine which denies to the federal
judiciary power to create crimes forthrightly admonishes
that we should not enlarge the reach of enacted crimes by
constituting them from anything less than the incriminating
components contemplated by the words used in the statute,”
Morissette v. United States, 342 U. S. 246, 263 (1952) (opinion
for the Court by Jackson, J.) (footnote omitted). If § 301,
§ 316(a), or § 7201 could stand amending, Congress will have
to do the rewriting.
C
Not only is Miller devoid of the support claimed for it, but
it suffers the demerit of some anomalies of its own. First
and most obviously, §§ 301 and 316 are odd stalks for grafting
a contemporaneous intent requirement, given the fact that
the correct application of their rules will often become
known only at the end of the corporation’s tax year, regard
less of the shareholder’s or corporation’s understanding
months earlier when a particular distribution may have been
made. Section 316(a)(2) conditions treating a distribution as
a constructive dividend by reference to earnings and profits,
and earnings and profits are to be “computed as of the close
of the taxable year . . . without regard to the amount of the
earnings and profits at the time the distribution was made.”
A corporation may make a deliberate distribution to a share
holder, with everyone expecting a profitable year and consid
ering the distribution to be a dividend, only to have the
shareholder end up liable for no tax if the company closes
out its tax year in the red (so long as the shareholder’s basis
covers the distribution); when such facts are clear at the time
the reporting forms and returns are filed,11 the shareholder
11 Sometimes these facts are not clear, and in certain circumstances a
corporation may be required to assume it is profitable. For example, the
instructions to IRS Form 1099–DIV provide that when a corporation is
unsure whether it has sufficient earnings and profits at the end of the
taxable year to cover a distribution to shareholders, “the entire payment

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does not violate § 7201 by paying no tax on the moneys re
ceived, intent being beside the point. And since intent to
make a distribution a taxable one cannot control, it would
be odd to condition nontaxable return-of-capital treatment
on contemporaneous intent, when the statute says nothing
about intent at all.
The intent interpretation is strange for another reason, too
(a reason in some tension with the Ninth Circuit’s assump
tion that an unreported distribution without contempora
neous intent to return capital will support a conviction for
evasion). The text of § 301(a) ostensibly provides for all
variations of tax treatment of distributions received with re
spect to a corporation’s stock unless a separate provision of
the Code requires otherwise. Yet Miller effectively con
verts the section into one of merely partial coverage, with
the result of leaving one class of distributions in a tax status
limbo in criminal cases. That is, while § 301(a) expressly
provides that distributions made by a corporation to a share
holder with respect to its stock “shall be treated in the man
ner provided in [§ 301(c)],” under Miller, a distribution from
a corporation without earnings and profits would fail to be a
return of capital for lack of contemporaneous intent to treat
it that way; but to the extent that distribution did not exceed
the taxpayer’s basis for the stock (and thus become a capital
gain), § 301(a) would leave the distribution unaccounted for.
It is no answer to say that § 61(a) of the Code would step
in where § 301(a) has been pushed out. Although § 61(a) de
fines gross income, “[e]xcept as otherwise provided,” as “all
income from whatever source derived,” the plain text of
§ 301(a) does provide otherwise for distributions made with
respect to stock. So using § 61(a) as a stopgap would only
sanction yet another eccentricity: § 301(a) would be held not
to cover what its text says it “shall” (the class of distribu
must be reported as a dividend.” See http://www.irs.gov/pub/irs-pdf/
i1099div.pdf (as visited Feb. 15, 2008, and available in Clerk of Court’s
case file).

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tions made with respect to stock for which no other more
specific provision is made), while § 61(a) would need to be
applied to what by its terms it should not be (a receipt of
funds for which tax treatment is “otherwise provided” in
§ 301(a)).
The implausibility of a statutory reading that either cre
ates a tax limbo or forces resort to an atextual stopgap is all
the clearer from the Ninth Circuit’s discussion in this case of
its own understanding of the consequences of Miller’s rule:
the court openly acknowledged that “imposing an intent re
quirement creates a disconnect between civil and criminal
liability,” 470 F. 3d, at 934. In construing distribution rules
that draw no distinction in terms of criminal or civil conse
quences, the disparity of treatment assumed by the Court of
Appeals counts heavily against its contemporaneous intent
construction (quite apart from the Circuit’s understanding
that its interpretation entails criminal liability for evasion
without any showing of a tax deficiency).
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.
IV
The Government has raised nothing that calls for affirm
ance in the face of the Court of Appeals’s reliance on Miller.
The United States does not defend differential treatment of
criminal and civil cases, see Brief for United States 24, and
it thus stops short of fully defending the Ninth Circuit’s
treatment. The Government’s argument, instead, is that we
should affirm under the rule that before any distribution may
be treated as a return of capital (or, by a parity of reasoning,
a dividend), it must first be distributed to the shareholder
“with respect to . . . stock.” Id., at 19 (internal quotation
marks omitted). The taxpayer’s intent, the Government
says, may be relevant to this limiting condition, and Boul

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ware never expressly claimed any such intent. See ibid.
(“[I]ntent is . . . relevant to whether a payment is a
‘distribution . . . with respect to [a corporation’s] stock’ ”); but
see Tr. of Oral Arg. 44 (“[J]ust to be clear, the Government is
arguing for an objective test here”).
The Government is of course correct that “with respect
to . . . stock” is a limiting condition in § 301(a). See supra,
at 424–425.12 As the Government variously says, it requires
that “the distribution of property by the corporation be
made to a shareholder because of his ownership of its stock,”
Brief for United States 16; and that “ ‘an amount paid by a
corporation to a shareholder [be] paid to the shareholder in
his capacity as such,’ ” ibid. (quoting 26 CFR § 1.301–1(c)
(2007); emphasis deleted).
This, however, is not the time or place to home in on the
“with respect to . . . stock” condition. Facts with a bearing
on it may range from the distribution of stock ownership 13
12 Another limiting condition is that the diversion of funds must be a
“distribution” in the first place (regardless of the “with respect to stock”
limitation), see supra, at 429–430, though the Government is content to
assume that § 301(a)’s “distribution” language is capacious enough to cover
the diversions involved here, and that if Boulware bears the burden of
production in going forward with the defense that the funds he received
constituted a “distribution” within the meaning of § 301(a), see n. 14, infra,
that burden has been met. Nor does the Government dispute that Boul
ware offered sufficient evidence of his basis and HIE’s lack of earnings
and profits. See Brief for United States 34, n. 11.
13 See, e. g., Truesdell v. Commissioner, IRS Non Docketed Service Ad
vice Review, 1989 WL 1172952 (Mar. 15, 1989) (“We believe a corporation
and its shareholders have a common objective—to earn a profit for the
corporation to pass onto its shareholders. Especially where the corpora
tion is wholly owned by one shareholder, the corporation becomes the alter
ego of the shareholder in his profit making capacity. . . . [B]y passing
corporate funds to himself as shareholder, a sole shareholder is acting in
pursuit of these common objectives”). We note, however, that although
Boulware was not a sole shareholder, the Tax Court has taken it as “well
settled that a distribution of corporate earnings to shareholders may con
stitute a dividend,” and so a return of capital as well, “notwithstanding
that it is not in proportion to stockholdings.” Dellinger v. Commissioner,

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to conditions of corporate employment (whether, for example,
a shareholder’s efforts on behalf of a corporation amount to
a good reason to treat a payment of property as salary).
The facts in this case have yet to be raked over with the
stock ownership condition in mind, since Miller seems to
have pretermitted a full consideration of the defensive prof
fer, and if consideration is to be given to that condition now,
the canvas of evidence and Boulware’s proffer should be
made by a court familiar with the whole evidentiary record.14
As a more specific version of its “with respect to . . . stock”
position, the Government says that the diversions of corpo
rate funds to Boulware were in fact unlawful, see Brief for
United States 34–37; see also n. 5, supra, and it argues that
§§ 301 and 316(a) are inapplicable to illegal transfers, see
Brief for United States 34–37; see also D’Agostino, 145 F. 3d,
at 73 (“[T]he ‘no earnings and profits, no income’ rule would
not necessarily apply in a case of unlawful diversion, such
32 T. C. 1178, 1183 (1959); see ibid. (noting that because other stockholders
did not complain when a taxpayer received unequal property, “under the
circumstances they must be deemed to have ratified the distribution”); see
also Crowley v. Commissioner, 962 F. 2d 1077 (CA1 1992); Lengsfield v.
Commissioner, 241 F. 2d 508 (CA5 1957); Baird v. Commissioner, 25 T. C.
387 (1955); Thielking v. Commissioner, 53 TCM 746 (1987), ¶ 87,227 P–H
Memo TC.
14 Boulware does not dispute that he bears the burden of producing some
evidence to support his return-of-capital theory, including evidence that
the corporation lacked earnings and profits and that he had sufficient basis
in his stock to cover the distribution. See Tr. of Oral Arg. 53. He in
stead argues that, as to the “with respect to . . . stock” requirement, it
suffices to show “[t]hat he is a stockholder, and that he did not receive this
money in any nonstockholder capacity.” Id., at 57. The Government, for
its part, on the authority of Holland v. United States, 348 U. S. 121 (1954),
and Bok, 156 F. 3d, at 163–164, argues that Boulware must offer more
evidence than that. We express no view on that issue here, just as we
decline to consider the more general question whether the Second Circuit’s
rule in Bok, which places on the criminal defendant the burden to produce
evidence in support of a return-of-capital theory, is authorized by Holland
and consistent with Sandstrom v. Montana, 442 U. S. 510 (1979), and re
lated cases.

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as embezzlement, theft, a violation of corporate law, or an
attempt to defraud third party creditors” (emphasis in origi
nal)); see also n. 8, supra. The Government goes so far as
to claim that “[t]he only rational basis for the jury’s judgment
was a conclusion that [Boulware] unlawfully diverted the
funds.” Brief for United States 37.
But we decline to take up the question whether an unlaw
ful diversion may ever be deemed a “distribution . . . with
respect to [a corporation’s] stock,” a question which was not
considered by the Ninth Circuit. We do, however, reject the
Government’s current characterization of the jury verdict
in Boulware’s case. True, the jurors were not moved by
Boulware’s suggestion that the diversions were corporate
advances or loans, or that he was using the funds for corpo
rate purposes. But the jury was not asked, and cannot be
said to have answered, whether Boulware breached any fi
duciary duty as a controlling shareholder, unlawfully di
verted corporate funds to defraud his wife, or embezzled
HIE’s funds outright.
V
Sections 301 and 316(a) govern the tax consequences of
constructive distributions made by a corporation to a share
holder with respect to its stock. A defendant in a criminal
tax case does not need to show a contemporaneous intent to
treat diversions as returns of capital before relying on those
sections to demonstrate no taxes are owed. The judgment
of the Court of Appeals is vacated, and the case is remanded
for further proceedings consistent with this opinion.
It is so ordered.