In the case of Commissioner of Internal Revenue v. Wilcox et al., 1945, the U.S. Supreme Court ruled that embezzled money does not constitute taxable income under section 22(a) of the Internal Revenue Code. The respondent, Wilcox, had been convicted for embezzling funds from his employer and was subsequently required by the IRS to pay tax on those funds as if they were income. However, he argued that since he obtained these funds illegally and without consent from his employer - thereby violating property rights - it should not be considered taxable income. The court agreed with this argument in a 6-3 decision stating that "unlawful gains do not constitute gross income" unless explicitly stated so in law or statute.

In the dissenting opinion for Commissioner of Internal Revenue v. Wilcox, Justice Rutledge argued that embezzled funds should be considered taxable income under the Internal Revenue Code. He disagreed with the majority's interpretation of "gross income," stating that it was too narrow and failed to encompass all accessions to wealth. Rutledge pointed out that an individual who embezzles money gains control over it and can use it for personal benefit, which is consistent with other forms of taxable income such as salaries or business profits. He also noted that excluding embezzled funds from taxation could create a perverse incentive for criminal behavior by making crime financially advantageous compared to legal activities subject to tax.