A former Sheriff of Morgan County, Alabama, purchased an 18-wheeler truck full of corn dogs for $500 and fed the corn dogs to inmates at each meal. He did so because in Alabama, the State provided each county sheriff with a monthly food allowance for each of their prisoners. The sheriff could keep any surplus but was responsible for any shortfall in feeding the prisoners.

The inmates filed a class action lawsuit alleging inhumane treatment. In 2008, the Court ordered the county to provide a nutritionally adequate diet to inmates and directed the Sheriff to maintain a separate account for jail food money.

When Ana Franklin was elected Sheriff of Morgan County, Alabama, in November 2011, she gained authority over the jail food money bank account. In 2015, the jail population doubled due to an increase in methamphetamine arrests, changes in Alabama sentencing law and the closure of municipal jails. Sheriff Franklin was concerned that because of the increase in the jail population, she would lack adequate funds to feed the inmates.

Sheriff Franklin’s boyfriend and county police officer, Steve Ziaja, told the her that she could lend $150,000 to Priceville Partners, LLC for 30 days and earn 17% interest. Mr. Ziaja offered to serve as guarantor for the loan. In June 2015, the Sheriff withdrew $155,000 from the jail food money bank account. She delivered $150,000 to Priceville Partners, LLC as a loan and retained $5,000 in the office safe as petty cash.

The loan to Priceville turned out to be part of a Ponzi scheme. Priceville Partners, LLC closed in November 2015 and filed bankruptcy in March 2016. In December 2016, Mr. Ziaja made good on his guarantee and repaid the $150,000 to the Sheriff who then returned the money to the jail food money bank account.

In January 2017, after learning that the Sheriff removed money from the jail food account, the class action members filed a motion for contempt. The Court found the Sheriff to be in civil contempt and sanctioned her $1,000. In December 2018, the Department of Justice filed charges against the Sheriff for willful failure to file her personal income tax return. The Sheriff pleaded guilty and was sentenced to 24 months’ probation. The IRS then issued a Notice of Deficiency asserting that the $155,000 removed from the jail food money bank account constituted taxable income as proceeds from embezzlement.

In Franklin v. Commissioner, T.C. Memo 2025-8, the Court ruled that the $155,000 was not taxable income. The Court reasoned that the withdrawal was an unauthorized loan since there was a consensual recognition of an obligation to repay the funds and not embezzlement. The Court relied on the facts that the loan was actually repaid; that the Sheriff was never charged criminally with embezzlement; that the Sheriff was only held in civil contempt and fined $1,000; and that the Sheriff was motivated to increase the jail food money bank account to properly feed the inmates. The Court declared that the Sheriff received no accession of wealth because she had a corresponding obligation to repay the funds back to the jail food money bank account.