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343 U.S.




No. 195. Argued December 3, 1951.-Decided March 24, 1952.

1. Money obtained by extortion is income taxable to the extortioner under $ 22 (a) of the Internal Revenue Code. Pp. 131-139.

(a) An unlawful gain, as well as a lawful one, constitutes taxable income when its recipient has such control over it that, as a practical matter, he derives readily realizable economic value from

it. P. 137. 2. Under the instructions given the jury in the prosecution of peti

tioner for willfully attempting to evade and defeat federal taxes, the verdict of the jury must be taken as reflecting its conclusion that the money in question was obtained by petitioner by extortion; and there was substantial evidence supporting that result. Pp.

132-137. 3. The factual issue whether, under all the circumstances, petitioner's

omission of the amount in question from his tax return constituted a willful attempt to evade and defeat the federal tax is not open to review here, since that issue is settled by the verdict of the jury supported by substantial evidence. Spies v. United States, 317

U.S. 492, applied. P. 135. 4. The case of Commissioner v. Wilcox, 327 U. S. 404, is limited to

its facts. P. 138. 5. Congress has power under the Sixteenth Amendment to tax as

income monies received by extortion. Pp. 138-139. 189 F. 2d 431, affirmed.

Petitioner was convicted in the Federal District Court under 26 U. S. C. $ 145 (b) for willfully attempting to evade or defeat federal taxes. The Court of Appeals affirmed. 189 F. 2d 431. This Court granted certiorari. 342 U. S. 808. Affirmed, p. 139.

Jack L. Cohen argued the cause for petitioner. With him on the brief was Edward Halle.


Opinion of the Court.

Irving I. Axelrad argued the cause for the United States. With him on the brief were Solicitor General Perlman, Acting Assistant Attorney General Slack and Lee A. Jackson.

MR. JUSTICE BURTON delivered the opinion of the Court.

The principal issue before us is whether money obtained by extortion is income taxable to the extortioner under § 22 (a) of the Internal Revenue Code. For the reasons hereafter stated we hold that it is.

The petitioner, Rutkin, was indicted under 26 U. S. C. § 145 (b)? for willfully attempting to evade and defeat a large part of his income and victory taxes for 1943. He was charged with filing a false and fraudulent return stating his net income to be $18,966.64, whereas he knew that it was $268,622.04. That difference, which would increase his tax liability from $6,843.93 to $222,408.32, was due largely to his omission from his original return


"(a) GENERAL DEFINITION.-'Gross income' 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. .” (Emphasis supplied.) 53 Stat. 9, 53 Stat. 574, 26 U.S.C. $ 22 (a).


"(b) . . . ATTEMPT TO DEFEAT or Evade Tax.-. . . any person who willfully attempts in any manner to evade or defeat any tax imposed by this chapter or the payment thereof, shall, in addition to other penalties provided by law, be guilty of a felony and, upon conviction thereof, be fined not more than $10,000, or imprisoned for not more than five years, or both, together with the costs of prosecution." 53 Stat. 62-63, 26 U.S. C. $ 145 (b).

994084 0-52-13

Opinion of the Court.

343 U.S.

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of $250,000 received by him in cash from Joseph Reinfeld. The United States claims that this sum was obtained by petitioner by extortion and as such was taxable income. Petitioner contests both the fact that the money was obtained by extortion and the conclusion of law that it was taxable income if so obtained. He contends also that he did not willfully attempt to evade or defeat the tax. Petitioner was found guilty by a jury in the United States District Court for the District of New Jersey, fined $10,000 and sentenced to four years in prison. The Court of Appeals affirmed, one judge dissenting. 189 F. 2d 431. We granted certiorari, 342 U. S. 808, so as to pass upon the alleged conflict between that decision and the decision in Commissioner v. Wilcox, 327 U. S. 404.

The facts are unusual but there can be no doubt that, under the instructions given the jury, we must regard its verdict as reflecting its conclusion that the $250,000 was obtained by petitioner by extortion. There was substantial evidence supporting that result. Reinfeld's first association with petitioner was in 1929 with several others in a bootlegging operation known as the “High seas venture.” It was accomplished through the use of a ship in the sale of whiskey at sea more than 12 miles from shore. Reinfeld testified that petitioner contributed no money to the enterprise but was taken in because Reinfeld's associates were afraid that otherwise they would get “in


3 The instructions included the following: “That somebody lied and committed perjury is perfectly patent because contradictory stories have been told, and you must say where the truth lies; and the problem of determining that truth is solely and peculiarly yours.

“But then we come to the admitted payment of $250,000. Rutkin says that that $250,000 was a final settlement of his claim in Browne Vintners, and if that is so—and the government does not contend that the capital gains tax was not paid he would not be obliged to


Opinion of the Court.

terference and trouble" from petitioner. His interest was recognized to be 6% but, when the venture was liquidated in 1933, he already was overdrawn and no distribution was made to him. Without including petitioner, the others then organized Browne Vintners Co., Inc., a New York corporation, to engage in the liquor business. In 1936 petitioner, without making an investment, claimed a 6% interest in Browne Vintners. Despite Reinfeld's denial of petitioner's claim, Reinfeld paid him $60,000 and took from him an assignment of “any and all of such shares of capital stock in the said BROWNE VINTNERS Co. Inc., that I am entitled to." In 1940 all the Browne Vintners stock was sold for $7,500,000 to a purchaser who also assumed $8,000,000 of the company's debts. The shares of stock when sold stood in the names of, and were transferred by, "nominees” so as to conceal the identity of Reinfeld and the other beneficial owners. A capital gains tax upon the profits from these sales was paid by the respective nominees. Petitioner was neither a stock

report that income. But Reinfeld says no, 'that was the result of extortion. He got that money out of me by threatening me and my family,' and he told the instances where those threats were made. There is one piece of corroboration of that, and that is from one of the six or seven people who were present in Holtz's cellar. ..

"If that money was extorted and was paid as a result of threats, then it was taxable income and Rutkin was under the duty of reporting that tax. . .


There is no contention here that the defendant didn't know he got the $250,000; the whole point is whether he got it by extortion or whether he got it properly. If he got it properly the tax was already paid.(Emphasis supplied.)

* The United States concedes that although, on a strict construction of the Internal Revenue Code, it may be that the proceeds of the sales should have been reported by the beneficial rather than by the record owners, their failure to so report the proceeds does not provide a satisfactory basis for a charge against them of a willful attempt to evade and defeat the tax in violation of § 145 (b).

Opinion of the Court.

343 U.S.

holder of record nor a beneficial owner of any of the stock of the company at any time.

In 1941, in response to petitioner's request, Reinfeld gave him about $10,000 to help buy a tavern. When petitioner used the money for other purposes Reinfeld refused to finance him further and his "trouble" with petitioner began. In 1942 petitioner again claimed that he had had an interest in Browne Vintners Company and that Reinfeld must give him $100,000 to help him pay his debts. Upon Reinfeld's refusal, petitioner threatened to kill him. From that time on, the record presents a

. lurid story of petitioner's unsatisfied demands upon Reinfeld for various sums up to $500,000, petitioner's threatening use of a gun and his repeated statements that he would kill Reinfeld and Reinfeld's family unless his demands were met. Finally, on May 11, 1943, in New Jersey, Reinfeld paid petitioner $250,000 in cash."

Throughout this melodrama petitioner asserted that he was entitled to the payments he demanded from Reinfeld because of petitioner's alleged former interest in Browne Vintners Company. That interest never was identified by petitioner. Reinfeld and others testified positively that petitioner never had any such interest. Nevertheless, on May 11, Reinfeld handed to petitioner $250,000 in cash at the same time that Reinfeld paid $358,000 to Zwillman and Stacher representing their conceded interest in the proceeds of Browne Vintners stock. Petitioner, with Zwillman and Stacher, thereupon signed a "general release.” It did not state the amounts paid but it did

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5 Reinfeld testified:

"Q. And did you think that their [your family's] lives were in danger? A. I thought so, yes.

"Q. Did you do anything to protect their lives? A. I paid off.

“Q. You thought that would protect them from a gunning man? A. I hoped so."

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