Sunday, October 24, 2021

Is Faking A Kidnapping Worth It: Althea and Jimmy Vail in The Final Deduction, by Rex Stout


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) (] 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.

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