United States v. William J. Scott
660 F.2d 1145 (1982)
Premium Feature
Subscribe to Lexplug to listen to the Case Podcast.
Rule of Law:
Campaign contributions diverted for a politician's personal use constitute taxable income in the year they are diverted. Additionally, funds received by a politician that are motivated by their official position or in return for services, rather than by detached and disinterested generosity, are considered taxable income, not non-taxable gifts, and must be reported.
Facts:
- William J. Scott, the Attorney General of Illinois, maintained a lifestyle primarily funded by cash, depositing his official paychecks and most expense reimbursements directly into savings and investment accounts.
- Throughout 1972, Scott maintained multiple safe deposit boxes, which he frequently accessed immediately before taking personal trips domestically and abroad.
- In the summer of 1972, lawyers Edward Barrett and William Kiley, who had received state business from Scott, gave him $5,000 in cash as a campaign contribution, which was never reported to or recorded by his campaign committee.
- In April 1972, William Shaffer, an investigator in the Attorney General's Office, gave Scott a $500 personal check marked "Campaign Use," which Scott subsequently deposited into his personal savings and loan account.
- During 1972, prominent Chicago businessman Arthur Wirtz paid over $11,000 to Ellen Cooper, whom Scott later married. These payments were made at Scott's request, despite Cooper performing no work for Wirtz's companies, which were subject to Scott's regulatory power as Attorney General.
- On his 1972 federal income tax return, Scott reported an adjusted gross income of $31,643 and did not include the funds from Barrett and Kiley, the check from Shaffer, or the payments made by Wirtz to Cooper.
- Scott contended that the large amounts of cash he possessed and spent were non-taxable gifts from supporters and friends.
- During his 1970 divorce proceedings, Scott had characterized a separate hoard of $48,900 in cash as campaign funds for political use only, thereby excluding it from his marital assets.
Procedural Posture:
- William J. Scott was indicted in the United States District Court on five counts of willfully filing false personal income tax returns for the calendar years 1972 through 1975.
- A jury trial was held in the district court.
- The jury returned a verdict finding Scott guilty on Count One, relating to his 1972 tax return.
- The jury acquitted Scott on Counts Two through Five, which related to his tax returns for 1973, 1974, and 1975.
- The district court entered a judgment of conviction on the guilty verdict and denied Scott's post-trial motions.
- Scott, as appellant, appealed the judgment of conviction to the United States Court of Appeals for the Seventh Circuit.
Premium Content
Subscribe to Lexplug to view the complete brief
You're viewing a preview with Rule of Law, Facts, and Procedural Posture
Issue:
Does a politician's failure to report funds as income violate federal tax law when those funds consist of campaign contributions converted to personal use or payments made to a third party for the politician's benefit due to their official position?
Opinions:
Majority - Fairchild, Senior Circuit Judge.
Yes, a politician's failure to report such funds as income violates federal tax law. The evidence was sufficient for a jury to find that Scott willfully filed a false tax return for 1972. Campaign contributions become taxable income at the moment they are diverted to personal use. The jury had ample evidence to conclude that the $5,000 cash from Barrett and the $500 check from Shaffer were campaign funds converted by Scott for his personal use in 1972. Furthermore, under the principle that income must be taxed to the one who earns it, the jury could reasonably infer that the payments from Wirtz to Cooper were attributable to Scott as income, earned as a result of his official position and influence. The jury was entitled to reject Scott's defense that his undocumented cash expenditures were funded by non-taxable gifts, and to find the element of willfulness based on his pattern of concealing assets and using cash to avoid creating records.
Analysis:
This decision reinforces the principle that political office does not shield an individual from income tax obligations on funds received in connection with that office. It solidifies the 'assignment of income' doctrine in the context of public officials, affirming that income is taxable to the person who earns it, regardless of whether it is directed to a third party. The case also serves as a key example of the government's dual-pronged strategy in complex tax fraud prosecutions, successfully using both the circumstantial net worth method and direct proof of specific unreported items. This provides a strong precedent for prosecuting public corruption that is disguised as campaign finance activity or personal gifts, demonstrating that the substance of a transaction, not its label, determines its tax consequences.
Unlock the full brief for United States v. William J. Scott