St. Louis Union Trust Co. v. United States

• Decision Date: 14 February 1936
• Docket Number: No. 10210.,10210.
• Citation: 82 F.2d 61
• Parties: ST. LOUIS UNION TRUST CO. v. UNITED STATES.
• Court: U.S. Court of Appeals — Eighth Circuit

82 F.2d 61 (1936)

ST. LOUIS UNION TRUST CO. v. UNITED STATES.

No. 10210.

Circuit Court of Appeals, Eighth Circuit.

February 14, 1936.

Daniel N. Kirby, of St. Louis, Mo. (Everett Paul Griffin and Charles Nagel, both of St. Louis, Mo., on the brief), for appellant.

Harry Marselli, Sp. Asst. to the Atty. Gen. (Frank J. Wideman, Asst. Atty. Gen., Sewall Key and Lucius A. Buck, Sp. Assts. to the Atty. Gen., and Harry C. Blanton, U. S. Atty., of Sikeston, Mo., on the brief), for the United States.

Before STONE, SANBORN, and BOOTH, Circuit Judges.

BOOTH, Circuit Judge.

This is an appeal from a judgment of the District Court entered September 17, 1934, in an action commenced January 27, 1928, by the United States against Edward Mallinckrodt, Sr., to recover additional income taxes and interest for the year 1920.

Edward Mallinckrodt, Sr., will be hereafter referred to as the taxpayer. He died February 1, 1928, and the St. Louis Union Trust Company, executor of his will, was duly substituted as defendant in the action.

A jury was duly waived and the case tried to the court June 6 and 7, 1933. Final judgment was rendered for plaintiff September 17, 1934, from which judgment the present appeal was taken.

The following facts appear to be undisputed: The taxpayer filed his income tax return for the year 1920 showing a tax due of $7,206.49 which was duly assessed, and paid by the taxpayer. Upon audit of this return, the Commissioner of Internal Revenue determined that the tax liability of the taxpayer for 1920 was greater by $61,171.93 than the amount returned, and notified the taxpayer of said deficiency.

January 29, 1925, the taxpayer appealed to the United States Board of Tax Appeals. The appeal was heard May 28, 1925.

The Board of Tax Appeals filed its opinion and its findings of fact September 27, 1926, and thereafter, on January 28, 1927, entered its order of redetermination which contained, among other language, the following: "That for the year 1920 there is no deficiency, but, on the other hand, there is an overassessment and an overpayment in the amount of $3,403.24."

After the order of the Board of Tax Appeals redetermining the deficiency (January 28, 1927), there was apparently not entire harmony of action in the several subdivisions of the office of the Commissioner of Internal Revenue with reference to the matter.

Action by one subdivision (July, 1927), resulted in there being sent to the taxpayer a certificate of overassessment, and a refund by a United States Treasury check in accordance with the order of redetermination.

Action by another subdivision resulted in nonacquiescence by the Commissioner (November, 1927), in the decision of the Board of Tax Appeals; and authorization (January, 1928), of the present suit, which was commenced January 27, 1928.

When the controversy was before the Board of Tax Appeals, it was heard and determined upon a stipulation of facts be-between the parties by their respective attorneys. Upon the trial of the present case in the United States District Court, the stipulation of facts was introduced and also, under objection, other evidence.

Passing to the particular transaction out of which the present controversy arose, the facts, practically undisputed, are substantially as follows, as found by the trial court:

"Edward Mallinckrodt, Sr., organized and established a `Trust' April 17, 1918, for the benefit of his son, Edward Mallinckrodt, Jr. and the son's family. The son and the St. Louis Union Trust Company were appointed Trustees of the Trust, the donor, Edward Mallinckrodt, Sr., reserving unto himself the right to make donations to the Trust from time to time as he saw fit, and further providing that `one of the express duties of the Trustees under this Trust, from time to time, is to abide by and carry out any written directions which the Trustor may give them in respect of the management or preservation of the trust estate, or the proper action to be taken by the Trustees in carrying out `The Arcade Building Enterprise. * * *' That on or about December, 1920, said Edward Mallinckrodt, Sr., was the owner of $81,500, face amount of Hudson & Manhattan Series A, 5% First Mortgage Bonds of the fair market value at March 1, 1913, of $70,274.69; 100 shares of Commonwealth Trust Company stock of the fair market value at March 1, 1913, of $37,000.00; 168 shares of stock of the New England Equitable Insurance Company of the fair market value at March 1, 1913, of $52,000.00; 500 shares of Hargadine-McKittrick Dry Goods Company First Preferred stock of the fair market value at March 1, 1913, of $39,000.00; 238-2/21 shares of Second Preferred Hargadine-McKittrick Dry Goods Company stock of the fair market value at March 1, 1913, of $9,047.61; and 375-100/357 shares of Hargadine-McKittrick Dry Goods Company common stock of the fair market value at March 1, 1913, of $3,378.00.

"Wishing to dispose of these stocks in the latter part of 1920, particularly for the purpose of establishing a loss upon them, the taxpayer in company with his secretary went to the office of G. H. Walker & Company, a brokerage house of St. Louis usually patronized by the taxpayer, and there had one William L. Bechtold, member of the firm, appraise the stocks, and after considering the question in conjunction with the taxpayer, the Hudson & Manhattan bonds were appraised at $46,873.42, with interest accumulated to the amount of $1,619.06; the Commonwealth Trust Company stock was appraised at $6,000.00; the First Preferred Hargadine-McKittrick Dry Goods Company stock was appraised at $500.00; the Second Preferred at $238.09; the Common stock at $375.27; and the New England Equitable Insurance Company stock at $168.00; or the sum total of $55,773.84. At this appraisement none of the Trustees of the Trust was present. The securities were left with G. H. Walker & Company, and upon instructions of the taxpayer they were offered for sale to the Trust, and the next day, or soon afterward, the secretary of the taxpayer was told by an official of the St. Louis Union Trust Company, one of the Trustees, that the Trust had no funds with which to purchase the Mallinckrodt securities above listed, and the secretary then made out a check in the sum of $55,773.84, payable to the Trustees of the Trust, dated December 24, 1920. This check was drawn on the First National Bank of St. Louis and signed by Edward Mallinckrodt, Sr. By check dated December 24, 1920, A. Hamilton, Assistant Trust Officer of the St. Louis Union Trust Company, paid G. H. Walker & Company $55,773.84 on the account of `Edward Mallinckrodt Trust'. This check was endorsed to the First National Bank of St. Louis by G. H. Walker & Company and marked paid December 24, 1920, by the First National Bank. Immediately thereafter, G. H. Walker & Company remitted to Edward Mallinckrodt, Sr., the proceeds of the check received from the Trust, less commissions and tax to the amount of $335.32, or net proceeds of $55,438.52. The Trust at the time of this transaction was actively engaged in erecting the Arcade Building in St. Louis, and was in need of funds to carry on the enterprise. No effort was made to dispose of the said securities to any other party than the Trust. Edward Mallinckrodt, Jr., one of the Trustees, had nothing whatever to do with the transaction."

The trial court further found:

"That the transaction was not a bona fide sale and at arm's length, for that the fixing of the `sale' price was not participated in by the purchaser. * * *

"That under the terms of the Trust Agreement the Trustor reserved the right to make written directions to the Trustees in respect to the management and preservation of the estate.

"That the Trustor did direct the Trustees to purchase the securities which he was offering for sale, and provided the funds with which to make the said purchase.

"That the net result of the transaction was that the Trustor after the alleged sale had the same funds, less the broker's commission, as before its consummation, and the Trust had the securities.

"That the transfer of the securities from Edward Mallinckrodt, Sr., to the Trust, regardless of the means used, was a gift of the securities to the Trust."

There are 43 assignments of error, of which 38 are said to be relied upon.

These assignments of error may largely be grouped under a few points as shown by the discussion in the briefs of counsel.

I. Was the suit properly brought in the name of the United States?

The suit was brought pursuant to section 283(j) of the Revenue Act of 1926, 44 Stat. 63, which contains the following language: "The Commissioner may, within one year from the time the decision is rendered, begin a proceeding in court for the collection of any part of the amount disallowed by the Board."

Appellant contends that this language requires the action to be brought in the name of the Commissioner. We think this contention cannot be sustained. The language quoted merely authorizes the Commissioner to start a proceeding in Court for the collection of the amount.

Section 919, Revised Statutes (28 U.S. C.A. § 732), is pertinent. It reads: "Sec. 919. All suits for the recovery of any duties, imposts, or taxes, or for the enforcement of any penalty or forfeiture provided by any act respecting imports or tonnage, or the registering and recording or enrolling and licensing of vessels, or the internal revenue, or direct taxes, and all suits arising under the postal laws, shall be brought in the name of the United States."

Sections 3213 and 3214, R.S. (26 U.S. C.A. §§ 1640, 1644, 1645 (a, c), are instructive by analogy. The latter section reads in part as follows: "Sec. 3214. No suit for the recovery of taxes, or of any fine, penalty, or forfeiture, shall be commenced unless the Commissioner of Internal Revenue authorizes or sanctions the proceedings." (26 U.S.C.A. § 1640).

This latter section, we think, expresses the clear purpose of the second sentence of...