Gatto v. Commissioner

Anne Gatto, Transferee, Petitioner, v. Commissioner of Internal Revenue, Respondent Gatto v. Commissioner Docket No. 37206 United States Tax Court 20 T.C. 830; 1953 U.S. Tax Ct. LEXIS 88; July 17, 1953, Promulgated *88 Decision will be entered under Rule 50. 1. Respondent determined that petitioner is liable as transferee for her husband's taxes for 1944 and 1945. The period of limitation for the transferor was extended for both years by agreement to June 30, 1950. Held, that the statute of limitations for determining transferee liability is 1 year after the expiration of the period against the transferor as properly extended by agreements. A jeopardy assessment was made against petitioner on June 22, 1951. The deficiency notice was mailed July 19, 1951. Held, further, since the jeopardy assessment was made within the applicable statute of limitations period as extended and since the deficiency notice was mailed within 60 days after the jeopardy assessment, it was a timely notice. 2. Held, that respondent has established a prima facie case of transferee liability in equity and is, therefore, entitled to judgment to the extent noted because petitioner has not introduced any evidence to rebut respondent's case. 3. On the date of transfer, the transferor-taxpayer owned assets in the amount of $ 2,045.02 which were not credited to the tax liability. So far as the record shows, *89 he still owns these assets. Held, that since the transferee's liability in equity is secondary, she is not liable for $ 2,045.02 of the transferor's unpaid taxes which was collectible from the transferor-taxpayer. William G. O'Neill, Esq., for the respondent. Black, Judge. BLACK *830 The respondent has determined liabilities for income tax deficiencies against petitioner, as transferee, as follows: Unpaid tax Year Deficiency Credits deficiency 1944 Income tax $ 10,739.96 $ 266.57 $ 10,473.39 1945 Income tax 19,459.02 1,962.00 17,497.02 Totals $ 30,198.98 $ 2,228.57 $ 27,970.41 The records of this office indicate that assets of Thomas Gatto, 1125-68th Street, Brooklyn, N. Y., *90 have been transferred to you. The above-mentioned amount represents your liability as a transferee of assets of Thomas Gatto, 1125-68th Street, Brooklyn, N. Y., for a deficiency of income tax due from Thomas Gatto for the taxable years ended December 31, 1944 and 1945. Petitioner assigns errors to the above determination as follows: A. Error in assignment of transferee liabilities. B. Statute of Limitations prevents the Commissioner of Internal Revenue to assign Transferee Liabilities. C. No transferee liability has been established. *831 FINDING OF FACTS. Petitioner Anne Gatto is an individual with principal residence in Brooklyn, New York. For the taxable years ended December 31, 1944, and December 31, 1945, respondent determined deficiencies in income tax against Thomas Gatto, petitioner's husband, as follows: Year Deficiency [1944] $ 10,739.96 [1945] 19,459.02 Total $ 30,198.98 The foregoing determinations were contained in notices of deficiency mailed to Thomas Gatto on May 9, 1949 (for the year 1944), and December 8, 1949 (for the year 1945). The notices of deficiency were mailed to Thomas Gatto within the statutory period allowed for such mailing, as extended*91 by agreements. The agreements extended the period for both years to June 30, 1950. Thomas Gatto filed a petition with this Court in which he requested a redetermination of the deficiency for 1944. The petition was not filed within the time prescribed by statute and the proceeding was dismissed. Thomas Gatto did not file a petition with this Court for the year 1945. The deficiencies determined against Thomas Gatto, less credits of $ 266.57 for the year 1944 and $ 1,962 for the year 1945, are still outstanding and have not been paid. The foregoing determinations were made the basis of a jeopardy assessment against petitioner on June 22, 1951. A notice of transferee liability was mailed to petitioner on July 19, 1951, in which respondent determined the transferee liability of petitioner as set forth above. The jeopardy assessment was made within 1 year after the expiration of the period of limitation for assessment against Thomas Gatto, and the notice of deficiency was mailed within 60 days after the making of the jeopardy assessment. Various attempts were made by respondent to collect the taxes due from Thomas Gatto. These attempts met with very little success. It was discovered*92 that stock of various corporations was not owned by Thomas Gatto, but instead belonged to his wife, petitioner herein. Respondent's agent checked the records of numerous banks for accounts of Thomas Gatto and located only two accounts which were open on November 21, 1947. These accounts had a total balance on deposit of $ 311.59. One account in the amount of $ 266.57 was levied upon and credited to the taxpayer's liability. The second account in the amount of $ 45.02 was not credited to the taxpayer's liability and was closed in 1948. Thomas Gatto transferred various parcels of real estate to petitioner on November 21, 1947, valued as of that date as follows: *832 Market Mortgage Net Address value balance equity 89-93 Union St., Brooklyn $ 4,500 $ 4,500.00 264 Degraw St., Brooklyn 7,500 7,500.00 273 Sackett St., Brooklyn 10,000 $ 7,211.03 2,788.97 278-280 Sackett St., Brooklyn 6,600 6,600.00 10,154.20 2101-29 Neptune Ave., Brooklyn 35,000 1 50,000.00 1117-25 68th St., Brooklyn 16,500 16,500.00 6014 7th Avenue, Brooklyn 13,500 7,500.00 6,000.00 5123 9th Avenue, Brooklyn 8,500 5,550.00 2,950.00 Totals $ 102,100 $ 46,838.97 *93 The above properties were transferred to petitioner without consideration. The investigation by respondent's agent disclosed that petitioner was apparently not in a financial position to furnish consideration for the properties transferred, there were no revenue stamps on the deeds, apparently no transfers were made from the bank accounts checked, and the transfers were between husband and wife. Following the above transfers on November 21, 1947, Thomas Gatto owned only one other parcel of real property. This was a vacant lot on 82 Union Street, Brooklyn, New York. This lot had a market value of $ 2,000 on November 21, 1947, and is still owned by Thomas Gatto. An extensive investigation by respondent's agent developed that after the transfers to petitioner set forth in the preceding paragraph, Thomas Gatto had assets of a total value of $ 2,311.59 remaining on November 21, 1947, comprising the bank accounts and the vacant lot referred to previously. The same condition has existed since that date except respondent*94 levied $ 266.57 upon one of the bank accounts. By reason of the transfers to petitioner, Thomas Gatto became and ever since has been insolvent and without assets, except to the extent above noted, with which to satisfy the outstanding tax liabilities, and petitioner is a transferee of the property of Thomas Gatto. OPINION. The issue presented here is whether petitioner is liable for income taxes for the years 1944 and 1945 under section 311 of the Code as transferee of the assets of Thomas Gatto, petitioner's husband. Petitioner did not appear personally at the trial nor introduce any evidence and she was not represented by counsel. The petition alleged that the statute of limitations prevented respondent from asserting a transferee liability against the petitioner herein and respondent's answer denied the allegations. Generally, the plea of the statute of limitations is an affirmative defense; the burden of proof is on petitioner. Edward M. Lawrence, 3 B. T. A. 40. Petitioner has offered no evidence to establish this affirmative *833 defense. However, sufficient evidence has been introduced to support a decision on the merits of this issue. *95 Section 311 (b) (1) of the Code provides that the period of limitation for assessment of transferee liability in the case of initial transferees of the property of the transferor shall be within 1 year after the expiration of the period of limitation against the transferor. This Court has said that section 311 (b) (1) means the original period of limitation for assessment against the transferor as properly extended by agreements. Rite-Way Products, Inc., 12 T. C. 475, 479. The original periods of limitation for assessment against the transferor, Thomas Gatto, for the years 1944 and 1945, were extended by agreements signed by him to June 30, 1950. Thus, so long as the deficiency notice was mailed to petitioner within 1 year following June 30, 1950, it was a timely notice. City National Bank v. Commissioner, 19 B. T. A. 1080, affd. 55 F. 2d 1073, certiorari denied 286 U.S. 561. The deficiency notice was mailed to petitioner on July 19, 1951, and at first glance would seem to have been mailed beyond the extended statutory period. However, a jeopardy assessment had*96 been made on June 22, 1951. The jeopardy assessment was made "within one year after the expiration of the period of limitation for assessment against the taxpayer" under section 311 (b) (1) as interpreted above. Section 273 (b) of the Code provides that a notice of deficiency must be mailed within 60 days after the making of the jeopardy assessment. Therefore, since the deficiency notice was mailed within the 60-day period allowed, it was a timely notice even though it was mailed several days after the limitation period because the jeopardy assessment had been made within the limitation period. Angier Corporation, 17 B. T. A. 1376, 1387, affirmed on this issue 50 F. 2d 887, 891, certiorari denied 284 U.S. 673. Since the correctness of the deficiencies which were determined against the transferor, Thomas Gatto, went unchallenged, respondent's determinations against the original taxpayer are sustained. However, the burden of proving that petitioner is a transferee is upon the respondent. Sec. 1119 (a), I. R. C. The Findings of Fact show that the transferor's taxes for 1944 and 1945, accrued on*97 March 15, 1945, and March 15, 1946, and were $ 30,198.98, of which $ 27,970.41 remains unpaid. He transferred to his wife, the petitioner, real estate with a net equity value of $ 46,838.97 on November 21, 1947. This transfer left the transferor with assets of a net value of $ 2,311.59, not sufficient to pay these tax deficiencies to an extent in excess of $ 25,000. The respondent has made reasonable efforts to collect the tax liability from the transferor but the taxes have not been paid. We have already sustained the respondent's determination *834 of the original deficiency and found that the proceeding against the petitioner as transferee was within the applicable statute of limitations. The proof submitted by the respondent is sufficient to establish a prima facie case that the petitioner is liable in equity for the unpaid tax deficiencies of her husband except to the extent noted below. The respondent makes out a prima facie case of transferee liability and is entitled to judgment here to the extent noted in the next succeeding paragraph, since the petitioner has not introduced any evidence to rebut respondent's case. Powers Photo Engraving Co., 17 T. C. 393,*98 remanded on another issue 197 F. 2d 704; Fada Gobins, 18 T. C. 1159, 1169; C. A. Hutton, 21 B. T. A. 101, affd. 59 F. 2d 66. Transferee liability in equity is a secondary liability and all reasonably possible remedies against the taxpayer-transferor must first be exhausted. Wire Wheel Corporation of America, 16 B. T. A. 737, affd. 46 F. 2d 1013; Oswego Falls Corporation, 26 B. T. A. 60, affd. 71 F. 2d 673. The transferor, Thomas Gatto, owned on November 21, 1947, one bank account with a balance of $ 45.02 and a vacant lot with a market value of $ 2,000, which were not credited to the taxpayer's liability. The petitioner's liability as transferee is secondary and she is not liable for $ 2,045.02 of the remaining unpaid deficiencies since that part of the tax could be collected from the transferor. Decision will be entered under Rule 50. Footnotes 1. A mortgage in the amount of $ 50,000, dated May 27, 1947, and recorded on December 12, 1947, was given to a creditor of Thomas Gatto on 2101-29 Neptune Avenue.↩