Rev. Rul. 61-185

The position stated in G.C.M. 24945, C.B. 1946-2, 27 has been reconsidered in the light of the decision in the case of Eugene C. James v. United States , 366 U.S. 213 (1961), Ct.D 1863, page 9, this Bulletin, handed down by the Supreme Court of the United States on May 15, 1961.

On the authority of the Supreme Court's decision in Commissioner v. Laird Wilcox, et ux. , 327 U.S. 404 (1946), Ct.D. 1668, C.B. 1946-1, 6, G.C.M. 24945 holds that the mere act of embezzlement does not, of itself, result in taxable income to the embezzler and that taxable income to the embezzler might result, under certain circumstances, only to the extent that the injured party might condone the taking of the property and forgive the obligation to repay.

In the James decision, the Supreme Court expressly overrruled its decision in the Wilcox case and held that embezzled funds are to be included in the gross income of the embezzler in the year in which the funds are embezzled.

The Internal Revenue Service will apply the James decision in its administration of Federal income tax law. Accordingly, G.C.M. 24945 is revoked and, since it modified G.C.M. 16572, C.B. XV-1, 82 (1936), the latter is superseded.