Is Faking A Kidnapping
Worth It:
Althea and Jimmy Vail in
The Final Deduction, by Rex Stout
I must begin
by warning you that this essay contains serious “spoilers,” so if you are not
familiar with the plot of The Final
Deduction, you should stop reading now and do something more useful than
read a deconstruction of the plot of a mystery novel.
Nero Wolfe’s
involvement begins when Althea Vale hires him to assure the safe return of her
husband, Jimmy Vail, who has been kidnapped.
Both of them have had very puplic lives prior to their marriage. Althea Purcell was an actor in a major hit on
Broadway; she walked away from the theatre to marry a wealthy man, Harold
Tedder (presumably in the late 1930s, as, at the time this episode begin
(around 1960), she had a son and daughter, both in their early 20s. Harold Tedder had died, apparently sometime
in the early to mid 1950s, leaving his considerable wealth solely to her. Jimmy Vail had been a nightclub comedian—highly
successful—in NYC. They married, and he
walked away from his career, much as she had walked away from hers.
The
kidnapping has been orchestrated by a Mr. Knapp, and his arrangements are
thorough and fairly ingenious. And the
ransom demand is $500,000. (It’s worth
knowing, I think, that, adjusted for general inflation, such a ransom today
would be around $6 million Keep in mind
that Althea has hired Wolfe to recover her husband, not to identify and bring
to justice the kidnapper(s). He asks
for, and receives, a retained of $50,000.
From this point on, I will be
discussing aspects of this affair that will be spoilers. So if you have not
read this mystery, or if you have read it and expect to read it again, please
stop reading now.
As Wolfe
begins to earn his fee, he becomes convinced that the kidnapping might be less
than it seems, that the Vails have staged the kidnapping, and anticipate claiming
a $500,000 deduction from their taxable income.
We never actually learn what their income is, but, as both have walked
away from their careers, their income is based on the fortune inherited by
Althea when her first husband died. This
has always seemed to me to be a fairly tricky, and risky, scheme. As I have thought about this, I began to look
at the potential rewards of pulling this fraud off successfully (spoiler: they
do not pull it off).
So. What are the potential rewards? Put simply, it’s the anticipated tax
saving. That saving will depend on the
(marginal) income tax rates and on whether ransom payments are, in fact, are
deductible. But against that is the risk
of being charged with and convicted of tax fraud, a risk that extends to Althea’s
personal secretary, Dinah Utley. (I do
not recall, and, during my most recent re-reading of the book, I could not find
any indication of what share of the loot Utley would receive. Presumably it would have to me a significant
percentage of the take.)
The
following table [Federal
Income Tax Brackets for Tax Year 1959 (Filed April 1960) (tax-brackets.org)]
shows the income tax rates, by income range, for 1960.* The amount of the (fraudulent) tax saving
follows directly by looking at the tax brackets and rates. We are not told what the household income is,
but the maximum tax saving would accrue only if the family taxable income is
greater than $1 million (roughly the equivalent of $12 million accounting for
inflation. The maximum tax saving (ignoring state and local income taxes, which
would have been negligible in 1969) would be 91% of $500,000--$455,000 (the
equivalent of $5.5 million at today’s general price level), minus Utley’s share. Or, at most, about half of one year’s income.
Federal Income Tax Brackets, 1960
Income
Bracket Marginal Tax
Rate
$0 - $3,999 20%
$4,000 -$ 7,999 22%
$8,000 -$11,999 22%
$12,000 – 15,999 26%
$16,000 - $23,999 34%
$24,000 - $27,999 43%
$28,000 - $31,000 47%
$32,000 - $35,999 50%
$36,000 - $39,000 53%
$40,000 - $43.000 56%
$44,000 - $51,999 59%
$52,000 - $63,999 62%
$64,000 - $75,999 65%
$76,000 - $79,999 69%
$80,000 - $99,999 72%
$100,000 – $119,000 75%
$120,000 – $139,999 78%
$140,000 - $159,000 81%
$160,000 - $179,000 84%
$180,000 - $199.000 89%
$200,000 -$299,000 90%
$500,000 + 91%
But there is
a second consideration. Would the ransom
be an allowable deduction from their taxable income? My take on this is that it might not be
deductible. Two factors matter. The first is whether proven ransom payment
constitutes a deductible a expenditure.
I have found this very difficult to establish. What I have been able to find pertains to business ransom payments (e.g., payments
to get “ransom wear” cleaned from computer systems. Or, in some cases, documentable kidnapping
and safe return of a business’s employee.
What is clear in these cases is that the relevant law enforcement agency
(or agencies) be able to document the denial of service that makes up the
ransom demand or the captivity of an employee.
This entails, at the least, law enforcement agencies being informed of
the event and being able to monitor the amount of the payment. I have been unable to determine** whether
what we might call private kidnapping
and ransom payment constitutes a deductible event under current law and
practice. But the implication of what I
have been able to discover about current practice does not present a clear case
for the deductibility of ransom paid for private kidnapping.
In addition,
I would suggest that that if ransom payments are deductible, the taxing
authority would require proof that
the kidnapping had occurred and that the payment had been made. In the case of the kidnapping of Jimmy Vail,
no attempt was made to inform the police that a kidnapping had occurred. In the
absence of some sort of proof that a kidnapping and ransom payment had actually
occurred, I seriously doubt that any taxing authority accept a claim of
deductibility of a ransom. And, if the “ransom
payment” is not deductible, the Vails would have undertaken a risk for no
reward
Let me make
this clear: Rex Stout is my favorite
author of mystery novels, I own copies
of all of them; I have read all of them multiple times. And, if one can ignore the technical issues
surrounding the kidnapping and subsequent murder, The Final Deduction is at the very least engrossing. But I am not sure that the premise of the
story really holds up.
*A
digression. Two things are striking
about the tax table for 1960 and the current tax table. First of all, there were 22 tax bracket in
1960— compared with7 tax brackets in 2020.
Second, the maximum tax rate
in 2020 was only 37%. Clearly, the
risk-reward ratio for a fraudulent kidnapping would be a lot less enticing
today.
**I spent
about 3 hours trying to determine either the state of current tax law and practice
or the state of law practice as it was in 1960, without success.
