A Bit of History: Andrew Mellon and Tax Fraud (8/12/20; 8/14/20)

Andrew Mellon is a name well-known to historians and, probably, most tax lawyers.  See Wikipedia page, here.  He was very wealthy and powerful and served as Secretary of Treasury in Republican administrations from 1921 to 1932.  Among his prominent legacies was the seeding of the National Gallery of Art in Washington, D.C.

A Mellon anecdote that I previously had not focused on was his tax travails where, after he left his Treasury Secretary position on Roosevelt’s election to the Presidency, the Government attempted unsuccessfully to indict him for tax evasion (11-10 vote in grand jury) and then issued a notice of deficiency seeking large deficiencies; somehow fraud was in issue (presumably either because of the civil fraud penalty or the statute of limitations).  Mellon v. Commissioner, 36 B.T.A. 977 (1937), here.  Robert Jackson, Wikipedia here, who later became Supreme Court Justice and chief prosecutor at the Nuremberg Trials, led the BTA case for the IRS.  The BTA rejected the IRS claim of fraud (36 B.T.A., at 1054-1055.

I picked subject up from the following blog posting today:  Andrew Mellon's Tax Trial (Tax Prof Blog 8/11/20), here, which links to Andrew Mellon's Tax Trial (PrawfsBlawg 7/18/20), here.  Both posts note the PrawfsBlawg’s suggestion that “A tax scholar and a con law scholar should get together and write this paper.”  It seems to me to be a subject for such an article, so I post it for readers of this blog to pursue if they wish. (I’m not sure I fit either description; in any event, I do not plan to pursue it.)

The PrawfsBlawg offers the following very interesting links:

• A page on the Robert H. Jackson Center’s site:  The Andrew Mellon Case: 1934-1937, here, that seems to be a teaching exercise for high school studentsdescribed as follows:

This lesson addresses the content understanding:

PROSPERITY AND DEPRESSION (1920-1939): *The 1920s and 1930s were a time of cultural and economic changes in the nation.  During this period the nation faced significant domestic challenges including the Great Depression. *Taken from:  New York State K-12 Social Studies Framework (New York State Education Department, 2014), p. 39

Students will examine:-The background reasons for the tax fraud case brought against Andrew Mellon-Robert H. Jackson’s role in the Andrew Mellon tax case-The results and consequences of the Andrew Mellon tax case-Andrew Mellon’s role in founding the National Gallery of Art in Washington, DC

• A page on the Christian Science Monitor’s archives:  Playing the IRS card: Six presidents who used the IRS to bash political foes (5/17/13), here.  The article does not deal directly with Mellon’s tax woes after leaving office but does describe a feud between Mellon and Senator Couzens in which Mellon wielded the Government’s tax powers against the Senator.   The article says:

There's no evidence that President Coolidge personally directed the IRS to punish political enemies. But his Treasury secretary – banker and industrialist Andrew Mellon – had no such scruples. Secretary Mellon's target was Sen. James Couzens (R) of Michigan, a former general manager of the Ford Motor Co. and a fellow millionaire who launched a congressional probe of tax rebates given to Mellon companies during World War I. The investigation revealed that Mellon had misrepresented the extent to which he was still involved in the management of his own companies, such as Alcoa, prompting calls for his resignation on the eve of the 1924 presidential vote.

After Coolidge was reelected, the Treasury under Mellon reopened the senator's 1919 tax return and ordered Couzens to pay $11 million in back taxes. But that wasn't the end of it. An appeals board eventually reversed that outcome and concluded that, in fact, Couzens was entitled to a refund. "This decision was the greatest humiliation Mellon had yet suffered at the Treasury," wrote biographer David Cannadine.

However, the incident set a template for future administrations for using the tax code to attack political opponents – a weapon that would be turned against Mellon himself in the Roosevelt administration.

• The Mellon Couzens feud is described in much detail in George K. Yin, James Couzens, Andrew Mellon, the 'Greatest Tax Suit in the History of the World,' and Creation of the Joint Committee on Taxation and Its Staff, 66 Tax L. Rev. 787 (2013), downloadable on SSRN, here.  (BTW, tax fans should read the article to understand the origin of the JCT and the role it plays in the tax system.)

• The PrawfBlawg also offers a link to a discussion of the impeachment efforts against Mellon that was averted when President Hoover appointed Mellon to be Ambassador to the United Kingdom.

JAT Comments (Added 8/14/20 9:00pm):

1. I said above that I have no interest in pursuing an article on the Mellon tax case matter, consisting of criminal grand jury consideration with a no bill and a civil case in the Board of Tax Appeals where the IRS, led by the then Assistant Attorney General Robert Jackson, asserted civil fraud.  I have been gathering some materials and talking with people who have some knowledge about that matter and perhaps even interest in digging farther into the matter.  So, even though I am not the person to write the article, I know at least one who may be interested (with the smarts and skill set to do a great job), but if anyone else is interested, I will share what I have.  Further, if anyone has historic materials or even insights into what happened, please let me know at jack@tjtaxlaw.com.   Thank you.