Tax Legal Services · Primary-source case analysis

Boulware: Return-of-Capital Treatment Did Not Require Contemporaneous Intent

By Aneeta Mishra and Timothy Chan

Published September 7, 2026

Boulware v. United States concerned diverted funds from a closely held corporation and whether the defendant could negate the tax-deficiency element by showing no earnings and profits and available stock basis.

The prosecution treated diverted corporate funds as taxable

Boulware, the controlling shareholder, was charged with tax evasion and filing a false return after diverting company funds. He sought to show that the corporation lacked earnings and profits.

Sections 301 and 316 classify distributions objectively

A distribution is a dividend to the extent of earnings and profits; otherwise it can reduce stock basis and then produce capital gain. Those consequences turn on economic facts rather than labels.

The Ninth Circuit required contemporaneous intent

The lower court excluded the defense because Boulware did not show that he or the corporation intended a return of capital when the funds were transferred.

The Supreme Court rejected the added intent requirement

The Code provided no textual basis for that condition. The Court vacated and remanded while leaving other threshold questions about whether the transfers were distributions for further consideration.

Key takeaways

• Reconstruct earnings and profits, stock basis, and each transfer before classifying a distribution.
• Separate the tax-deficiency element from criminal willfulness.
• Do not substitute bookkeeping labels or after-the-fact intent for statutory calculations.
• Preserve corporate records and evidence bearing on whether a transfer was made with respect to stock.