United States v. Massei

Background

The case involves a federal tax prosecution where the Court of Appeals ordered a new trial partly because it found no "proof of likely source" for the net worth method the Government used. The Court of Appeals treated that proof as an "indispensable" element and relied on the earlier Holland v. United States decision when reaching its conclusion.

Reasoning

The Supreme Court explained that Holland held proof of a likely source was "sufficient" to convict when the Government could not rule out all possible non-taxable sources, but Holland did not mean that such proof is required in every case. The Court made clear that if all possible non-taxable sources have been negated, there is no need for separate proof of a likely source. The opinion instructs that this clarification must guide how Holland is applied here, and because the Court of Appeals allowed a new trial, the Supreme Court affirmed that judgment.

Real world impact

This ruling affects how lower courts handle tax prosecutions that rely on the net worth method. Courts that treated "proof of likely source" as always indispensable must reconsider their approach. Defendants may secure new trials if lower courts misapplied Holland, and prosecutors may need to either identify a likely source or show they have ruled out all non-taxable explanations for an increase in net worth.

Dissents or concurrances

Justice Douglas stated he would also affirm the lower-court judgment but would do so on the opinion of the Court of Appeals.