Tax Legal Services · Primary-source case analysis

Boulware: Rejecting an Intent Requirement Did Not Make Every Diversion Tax-Free

By Aneeta Mishra and Timothy Chan

Published September 7, 2026 · Updated October 18, 2026

Decision: Boulware v. United States, 552 U.S. 421 (2008).

A shareholder did not have to prove an original intent to return capital before invoking the distribution rules in a criminal tax case. But that did not establish that every diverted payment was tax-free. Boulware v. United States, 552 U.S. 421 (2008), removed the added intent requirement and sent the case back, preserving important questions about the capacity in which the shareholder received the money.

The prosecution treated diverted corporate funds as taxable

Boulware sought to show that the corporation had no earnings and profits and that his stock basis covered the distributions. The district court excluded his return-of-capital theory under the Ninth Circuit’s contemporaneous-intent rule, and the court of appeals affirmed. The Supreme Court examined the legal reason for excluding the theory; it did not itself make a final calculation of the shareholder’s tax. The government’s allegations about the diversions also were not substitutes for findings on every question later raised. Boulware, 552 U.S. at 425–428,439.

Sections 301 and 316 classify distributions objectively

For a corporate distribution made with respect to stock, the opinion explains the sequence: Dividend treatment to the extent of earnings and profits, then return of capital against basis, then gain for the remaining amount. Intent does not replace those economic facts. The Court also explained why a separate criminal willfulness element does not permit the government to omit proof of a tax deficiency under section 7201. The two inquiries remain separate. Boulware, 552 U.S. at 424–425,430–434.

The Ninth Circuit required contemporaneous intent

The rejected rule would have required the defendant to show that the corporation or shareholder intended a return of capital when the transfer occurred. Yet the relevant earnings-and-profits calculation could depend on year-end facts not known when money changed hands. The Court found no statutory basis for grafting that intent condition onto the distribution rules. Nor could the lower court create a different classification rule merely because the proceeding was criminal rather than civil. Boulware, 552 U.S. at 431–436.

The Supreme Court rejected the added intent requirement

The government argued that the transfers still had to be made with respect to stock—for example, not as salary—and raised a separate objection about unlawful diversions. The Court left those matters for further consideration on the record. It also reserved the disputed burden-of-production questions in footnote 14. Vacatur and remand therefore did not amount to an acquittal or an automatic return-of-capital determination. The case permits reliance on the statutory framework without the added intent condition; it does not excuse proof that the framework applies. Boulware, 552 U.S. at 436–439 and footnote 14.

Key takeaways

• Reconstruct earnings and profits, stock basis, and each transfer before classifying a distribution.
• Separate the tax-deficiency element from criminal willfulness.
• Identify the capacity in which each transfer was received, not just whether the recipient owned stock.
• Distinguish the rejected intent requirement from the questions expressly reserved for remand.