Local 396 was not a party defendant in the criminal proceeding against the petitioner; it was not named as a defendant in the indictment, nor was it separately charged with any criminal offense.

After the indictment and before the petitioner's trial, the local voted unanimously to reelect Matula as its secretary-treasurer. Since then and even after conviction and loss of petitioner's appeals, Matula has been reelected to the same position on several occasions, the last being on December 9, 1962. The union paid petitioner his full salary during the entire period including1963 U.S. Tax Ct. LEXIS 64">*72 the period he spent in jail.

Prior to the time the petitioner testified before the committee, he and another union agent subpoenaed to testify were advised by the local's regular attorney, John C. Stevenson, to tell the truth. Local 396 never authorized petitioner to give false testimony before the committee and had no knowledge prior to his appearance before the committee on October 3, 1955, as to what his testimony would be. The local never ratified or confirmed the commission of perjury by petitioner.

Petitioner did not report any of the amounts paid by local 396 to his lawyers as income in his income tax return for any year.

The crucial facts in this case are:

Petitioner, secretary-treasurer and manager of local 396, gave false testimony before a California legislative committee.

He was indicted for perjury, was tried, and convicted.

He lost his appeals, was sentenced, and paid his debt to society.

The local, acting through its executive board, retained lawyers to defend petitioner and to prosecute his appeals, and paid their fees and expenses from its general funds. The membership of the local approved these actions and expenditures.

The union was not indicted and no part 1963 U.S. Tax Ct. LEXIS 64">*73 of the payment of fees and expenses were paid for its own defense. All amounts involved were paid for the defense of the charges against petitioner and for the appeals taken by him following his conviction.

On these facts, the sole question is whether the payments constitute taxable income to petitioner in the years in which they were made under section 61, I.R.C. 1954.

We have held in a long line of cases, beginning with Sarah Backer, 1 B.T.A. 214">1 B.T.A. 214 (1924), that payments of legal expenses incurred in the unsuccessful defense of criminal charges are not deductible for income tax purposes. Henry L. Peckham, 40 T.C. 315">40 T.C. 315 (1963); Thomas A. 40 T.C. 914">*918 , 26 T.C. 562">26 T.C. 562 (1956), and cases there cited. Petitioner's reliance on Commissioner v. Heininger, 320 U.S. 467">320 U.S. 467 (1943); Deputy v. du Pont, 308 U.S. 488">308 U.S. 488 (1939); Welch v. Helvering, 290 U.S. 111">290 U.S. 111 (1933); and Kornhauser v. United States, 276 U.S. 145">276 U.S. 145 (1928), is misplaced. Those cases are clearly distinguishable1963 U.S. Tax Ct. LEXIS 64">*74 on their facts, and we do not understand any of them to require the allowance of a deduction of such expenses. 26 T.C. 562">Thomas A. Joseph, supra; cf. Tank Truck Rentals, Inc. v. Commissioner, 356 U.S. 30">356 U.S. 30 (1958), affirming 242 F.2d 14 (C.A. 3, 1957), 26 T.C. 427">26 T.C. 427 (1956).

It is also well settled that a corporation which pays the fines and/or legal expenses of unsuccessful defense of criminal charges against its officers or employees may not take an income tax deduction for the amounts so paid. 356 U.S. 30">Tank Truck Rentals v. Commissioner, supra;Gould Paper Co. v. Commissioner, 72 F.2d 698 (C.A. 2, 1934), modifying and remanding on other issues 26 B.T.A. 560">26 B.T.A. 560 (1932); Pantages Theatre v. Welch, 71 F.2d 68 (C.A. 9, 1934); Burroughs Building v. Commissioner, 47 F.2d 178 (C.A. 2, 1931), affirming 18 B.T.A. 101">18 B.T.A. 101 (1929).

Here the issue presented is not as to the deductibility by the corporation of such expenses, 1963 U.S. Tax Ct. LEXIS 64">*75 but rather whether or not they constitute taxable income to the officer who benefits from the payments. Section 61 of the Internal Revenue Code of 1954 is very broad and all-inclusive in its definition of gross income. The Supreme Court has repeatedly held that Congress has intended, by its broad definition of gross income, to exercise the full measure of its taxing power and tax all gains except those specifically exempted. Commissioner v. Lo Bue, 351 U.S. 243">351 U.S. 243 (1956), and cases there cited. ³

We have held that where a corporation pays the fine imposed personally on its president, convicted of willful evasion of the corporation's income tax by filing false and fraudulent corporate returns, such payments constitute taxable income to the beneficiary. Irving Sachs, 32 T.C. 815">32 T.C. 815 (1959),1963 U.S. Tax Ct. LEXIS 64">*76 affd. 277 F.2d 879 (C.A. 8, 1960), certiorari denied 364 U.S. 833">364 U.S. 833. The only differences between the facts involved in Sachs and those presented here are that petitioner there was an officer and minority stockholder rather than merely an officer and employee, and the payments made for his benefit by the corporation were of fines rather than of legal fees and expenses.

We can see no material distinction between the payment of fines imposed following criminal conviction and legal fees and expenses paid in an unsuccessful effort to defend against criminal charges. In the Burroughs case, the Court refused to recognize the distinction saying (p. 180):

40 T.C. 914">*919 If the fines and costs cannot be deducted, the legal expenses incurred in litigating the question whether the taxpayer violated the law and whether fines should be imposed should naturally fall with the fines themselves.

So, also, if the payment of fines imposed on a corporate officer following his conviction constitutes income to him, the payment of his legal expenses incurred in litigating the question should naturally constitute income to him as well.

We see no1963 U.S. Tax Ct. LEXIS 64">*77 valid distinction between the case of an officer-stockholder and an officer-employee. Nor do we feel it necessary to characterize the nature of the payments. Cf. Mary B. Heyward, 36 T.C. 739">36 T.C. 739 (1961), affd. 301 F.2d 307 (C.A. 4, 1962). Whether the payments are regarded as dividends, compensation, or other income to the officer, their taxability to the recipient is the same. The payment of fines or personal legal defense expenses of a corporate officer by his corporation fall within the broad definition of gross income "from whatever source derived" in section 61 of the Code unless some other Code section would exclude them. ⁴

1963 U.S. Tax Ct. LEXIS 64">*78 Most of the arguments relied upon by petitioner here were made by the taxpayer in Sachs. ⁵ In answering those arguments in Sachs we said (p. 820):

The petitioner contends that he was not enriched by the payment by the corporation, that he was merely indemnified against the loss to which he was subjected by his conduct of the corporate affairs. He argues that his net worth was not increased, pointing out that before the fine was imposed he had the same net worth as he had after it was paid. He further argues that as a prerequisite to a holding that income was received, the obligation which was satisfied must have been a debt incurred for a consideration. He illustrates this by stating that if one buys groceries he receives the value of what he has purchased and that this is his gain, offset by the requirement of payment for them; and if another pays for the groceries, the man is richer by the value of the groceries, not the amount of the payment, which only measures the value of the goods furnished.

Thus the petitioner would have us look to the net result of both the imposition of the fine and its payment by the corporation. But we think this view of the petitioner misses1963 U.S. Tax Ct. LEXIS 64">*79 the point entirely. While it is true that the filing of a corporate return was an act on behalf of the corporation, it certainly cannot be said to have been a part of his duty to file a false and fraudulent return. In so doing he became personally liable for the fine and costs. The corporation was not a party to the criminal proceedings and was not liable for the fine to any extent. The petitioner makes some point of the fact that in the indictment and 40 T.C. 914">*920 judgment the petitioner was described as president and treasurer of the corporation. This, however, was merely descriptive and did not in any way make the corporation a party defendant. If the corporation had not paid this amount for him he would have had to pay it out of his own resources. * * *

1963 U.S. Tax Ct. LEXIS 64">*80 Here petitioner was the sole defendant in the perjury case. It was petitioner alone who was tried, convicted, fined, and sentenced to jail for the very personal crime of perjury. It was certainly no part of his official duty as secretary-treasurer of local 396 to violate the law by giving false testimony before the California legislative committee, and we have found that the union had no knowledge that he would testify falsely when he appeared before the committee.

We have also found that the local never ratified petitioner's criminal conduct. The record is completely barren of evidence that the union's executive board or its general membership were ever informed of what false testimony was given by petitioner or of the details of his offense. Ratification, in our view, would not alter the tax consequences in any event, and it, of course, presupposes full knowledge of the facts and circumstances. Jameson v. Gavett, 22 Cal. App. 2d 646">22 Cal. App. 2d 646, 71 P.2d 937 (1937), and the other cases on which petitioner relies, are all civil cases involving civil liability of the master for a servant's acts; none of them are tax cases and as Gavett1963 U.S. Tax Ct. LEXIS 64">*81 points out "approval and ratification by the master with full knowledge of the surrounding circumstances may fix liability upon the master for an act of the servant which was outside the scope of employment." (Emphasis added.) Even if the local had ratified petitioner's perjury with full knowledge of the facts and circumstances, it would have incurred no criminal responsibility, been subject to no fine or other penalty. It was not in any way a party to the criminal prosecution of Matula for perjury. Therefore, even with ratification, which we have found did not occur, the criminal proceeding remained personal to the petitioner.

The union was affected only indirectly by being deprived of his services while he stood trial and later served time in jail. The amounts spent for lawyers, costs, and the expenses of trial and appeals were not expended in defense of the local but rather in defense of petitioner personally. The payments by local 396 here involved were payments of personal expenses of petitioner and not of the union. We are not impressed with petitioner's argument that the union was on trial and would be adversely affected by petitioner's conviction.

In Forty-Four Cigar Co., 2 B.T.A. 1156">2 B.T.A. 1156 (1925),1963 U.S. Tax Ct. LEXIS 64">*82 we held that expenditures made by a corporation to pay lawyers' fees, expenses, and costs of settling a case with a relative of its president could not be deducted by the company. The board and stockholders duly voted to pay such costs because the corporation's business was being damaged by the family fracas. We said there:

In final analysis, the money and credit of the corporation were paid out for the purpose of settling disagreement in the family of the president of the company, 40 T.C. 914">*921 who owned practically all of the stock. To be sure, it was done with the consent and upon the recommendation of the minority stockholders and officers, who feared that if it were not done the company would be ruined. The transaction amounted to a withdrawal of corporate assets and their use for the personal benefit of the president and principal stockholder. The facts are that the president had insufficient means, except by using the assets of the corporation, to enable him to induce his relative to cease his pernicious activities. That those activities, if continued, would probably have resulted in the ruin of the corporation's business does not, in our opinion, render the payments a loss1963 U.S. Tax Ct. LEXIS 64">*83 to or an ordinary and necessary business expense of the corporation, or deprive them of their essential character as personal expenditures of its president. [Emphasis added.]

So, too, here we can only conclude that what the union's board or membership felt about the adverse effects of petitioner's criminal prosecution and conviction on their affairs did not change the essential nature of the payments as purely personal to the petitioner. Cf. Ernest E. Lloyd, 22 B.T.A. 674">22 B.T.A. 674 (1931); George L. Rickard, 12 B.T.A. 836">12 B.T.A. 836 (1928).

Matula was retained as an employee after his indictment and conviction; his salary was increased by the local union in 1957 and it was continued and paid even while he was serving time in jail. We think that under all of the facts and circumstances disclosed by the record here the payments by the union resulted in an economic benefit to and enrichment of the petitioner. If the union had not retained lawyers for petitioner and then paid their fees and costs, he would have been compelled to retain and pay his own lawyers and expenses in defending himself against the perjury charge and prosecuting1963 U.S. Tax Ct. LEXIS 64">*84 his appeals. He arranged, acquiesced in, and approved the selection and retention of the lawyers to represent him. He benefited personally and directly from such actions and payments, and the result was the same as if the union had paid the amounts involved to the petitioner and he had, in turn, made payments to his lawyers for their fees and expenses.

We approve the respondent's determination that the petitioner received taxable income in each of the years upon the payment by local 396 of his legal fees and expenses incurred in connection with his unsuccessful efforts to avoid conviction for perjury.

Decision will be entered for the respondent.