Marienfeld v. United States

• Decision Date: 10 August 1954
• Docket Number: No. 14976.,14976.
• Court: U.S. Court of Appeals — Eighth Circuit
• Parties: MARIENFELD v. UNITED STATES.

214 F.2d 632 (1954)

MARIENFELD v. UNITED STATES.

No. 14976.

United States Court of Appeals Eighth Circuit.

July 12, 1954.

Rehearing Denied August 10, 1954.

Harry C. Blanton, Sikeston, Mo., and James A. Finch, Jr., Cape Girardeau, Mo., for appellant.

W. Francis Murrell, Asst. U. S. Atty., St. Louis, Mo. (Harry Richards, U. S. Atty., St. Louis, Mo., and Max H. Goldschein, Sp. Asst. to Atty. Gen., Department of Justice, on the brief), for appellee.

Before SANBORN, JOHNSEN, and COLLET, Circuit Judges.

COLLET, Circuit Judge.

Appellant was convicted of willfully attempting to evade his income taxes by filing a false income tax return for the year 1946. His defense was that the money received by him that year which he did not report was money he embezzled and hence was not his income. The trial court filed a memorandum opinion in ruling on the motion for new trial. In that opinion appears the following statement of many of the salient facts:

"The defendant was in the business of selling beef and pork at wholesale under the name of Mar Meat Company, and in his meat operations engaged in a boning operation of beef and pork carcasses delivered to him by the Stokely-Van Camp Company (herein referred to as `Stokely'). Stokely had a contract with the Government to put up canned meat rations for the Army. It used the boned meat for that purpose. After defendant boned the meat delivered to him by Stokely, the meat was shipped to Stokely for canning. For the boning operation defendant received payment from Stokely on a pound basis. Stokely furnished the packing materials, paid the freight, and paid the storage charges on boned meat that went to cold storage.

"In the boning operation there were certain by-products that could not be used in Army rations. Defendant was authorized by Stokely to sell these by-products for the `account' of Stokely. The by-products were `bones, suet, kidneys, skin, shank meat, ox joints and tenderloin.' Defendant did sell these. The tenderloin, in some instances, was converted by defendant into hamburger before sale. In making hamburger suet was added. Stokely did not authorize or have knowledge of the use of by-products, by defendant, to make and sell hamburger. Much of Stokely's meat after boning went to cold storage. The tenderloin which defendant made into hamburger was, for the most part, also placed in storage. Stokely's boned meat was placed in storage in its name, as Stokely had directed. The hamburger made from tenderloin was put in cold storage by defendant in his name without the knowledge of Stokely.

"Defendant, needing more money than he could honestly make, conceived a plan to get some of it out of the boning operation being done for Stokely. Defendant proceeded to sell a part of the by-products and withheld information of such sales from Stokely by keeping and sending false reports to Stokely. Income from such sales went into defendant's personal bank account and was used by him for personal purposes. All customers required a record of their purchases. Defendant furnished such a record by using `dray tickets,' but kept off his office records any reference to such sales. The purchasers of meat products were unaware of defendant's fraudulent scheme. Defendant used dray tickets in each sale involved in his fraud on Stokely. The dray tickets so used, unlike those used in legitimate transactions, were unnumbered. Defendant's bookkeeper testified to the practice. Defendant did likewise. The bookkeeper testified that at defendant's direction, when money came into the office, collected on the unnumbered dray tickets, he made no record of it but delivered the money to defendant. Defendant used the same method of getting funds in the sale of both converted by-products of Stokely and unconverted by-products of Stokely. He used the same kind of unnumbered dray tickets in sale of products that were not Stokely by-products, which were not recorded on his books.

"The income on these unrecorded dray tickets represented the income which the Government claims defendant failed to report in his income tax return, knowingly and with intent to defraud the Government of the tax on the sums of money. Such is the basis of this prosecution.

"The record shows, and defendant admitted, that the income was not shown on defendant's books. It was from defendant's books that his tax returns were made by an auditor. The auditor testified he did not receive any unnumbered dray tickets from the defendant to use in making defendant's returns for the period covered by the prosecution. This testimony was not disputed by the defendant while he was on the stand. And although defendant took the stand as a witness, he did not elect to testify to the events surrounding the preparation, signing and filing of the tax returns claimed by the Government to be fraudulent."

In addition to money kept by appellant in the manner detailed above, he also in many instances reported by-products as having been sold for one price when in fact they were sold for a higher price. He only remitted the lesser amount. Also, he charged Stokely for more packaging materials than he used.

In the charge to the jury, all money received by appellant, other than money received from the sale of by-products on unrecorded dray tickets, was eliminated from the jury's consideration.¹ In defining what would constitute income to appellant, the court charged the jury as follows:

"Now, generally speaking, unlawful money gains, as well as lawful ones, may constitute taxable gains when the taxpayer and recipient of money has such control over the money, as a practical matter, that he readily realizes economic value from it. This occurs when cash is delivered by its owner to the taxpayer in a manner which allows the taxpayer freedom to dispose of it at will. The money received may have been obtained by unlawful means, such as by fraud, converting property of another and processing and selling it and retaining the proceeds, even though the taxpayer might be liable to a claim from the owner of the original property for its cost price or some other consideration."

The court then instructed the jury that money obtained by appellant from the sale of by-products in their original state was not taxable income to him and he was not required to report it, but that if appellant took tenderloin or other meat products and converted it into some other product, such as meat ground into hamburger, and sold the converted product, the income from such sales was income to appellant which should have been reported.² (In the memorandum opinion the court concluded that all receipts from by-products, whether converted into other products or not, were taxable income of appellant.) Since appellant admitted the conversion of a large quantity of by-products, their sale, the retention of the proceeds of such sales, and his failure to report such receipts as income, and since the proceeds from such sales constituted a substantial sum, in effect, the only question left to the jury was the question of willfullness.³

Thus the primary question for determination arises — was the income received from the sale of the converted by-products reportable income of appellant or was it Stokely's money which appellant did not obtain such a proprietary interest in or dominion over as to constitute it income to him.

Appellant says that since his acts in question were committed in Missouri, the law of Missouri should be applied in determining the legal effect of those acts; that such acts amounted to embezzlement under Missouri law,⁴ and hence under the doctrine of Commissioner of Internal Revenue v. Wilcox, 327 U. S. 404, 66 S.Ct. 546, 549, 90 L.Ed. 752, the embezzled funds were not income to appellant. But the present question is not whether appellant was guilty of embezzlement under the law of Missouri, but whether the funds he received were his income under the Act of Congress defining taxable income. State law will not be decisive in that determination. Daine v. Commissioner, 2 Cir., 168 F.2d 449, 451, 4 A.L.R.2d 248. As stated in the Wilcox case:

"Moral turpitude is not a touchstone of taxability. The question, rather, is whether the taxpayer in fact received a statutory gain, profit or benefit. That the taxpayer\'s motive may have been reprehensible or the mode of receipt illegal has no bearing upon the application of Section 22 (a)."

Although in the Wilcox case the opinion refers to the fact that under the law of Nevada the embezzlement was complete when the appropriation was made and that under Nevada law the rightful owner was entitled to replevy the money or have it summarily restored as soon as it was appropriated, we do not understand the opinion to hold that the varying local law of different states will determine for federal income tax purposes what shall be treated as taxable income under the federal income tax laws.

We find it difficult to reconcile the Wilcox case with the later opinion of the Supreme Court in Rutkin v. United States, 343 U.S. 130, 72 S.Ct. 571, 576, 96 L.Ed. 833. Since four members of that court were unable to do so, we shall not attempt to do so, but will apply the reasoning of both cases in reaching a solution to our present problem.

In the Wilcox case the court approved the previously declared criterion for determining taxable income as depending "`upon the enjoyment by the taxpayer of privileges and benefits so substantial and important as to make it reasonable and just to deal with him as if he were the owner, and to tax him on that basis.'" And further — "In fact, no single, conclusive criterion has yet been found to determine in all situations what is a sufficient gain to support the imposition of an income tax. No more can be said in general than that all relevant facts and circumstances must be considered."

The Wilcox case was a clear-cut case of embezzlement. The taxpayer was a bookkeeper who collected money due his employer and immediately...