Vogelstein v. Commissioner

LUDWIG VOGELSTEIN, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. Vogelstein v. Commissioner Docket No. 24408. United States Board of Tax Appeals 16 B.T.A. 947; 1929 BTA LEXIS 2483; June 7, 1929, Promulgated *2483 Where a petitioner admits that he is the transferee of the assets of a dissolved corporation and the Commissioner introduces no evidence to show the value, if any, of those assets the Commissioner has not borne the burden of proof imposed upon him by section 912 of the Revenue Act of 1926, added to the Revenue Act of 1926 by section 602 of the Revenue Act of 1928, of showing any liability on the part of the transferee of a tax due from a taxpayer. J. C. Peacock, Esq., J. W. Townsend, Esq., and C. E. Koss, Esq., for the petitioner. W. F. Gibbs, Esq., for the respondent. SMITH *947 This is a proceeding for the redetermination of liability asserted by the Commissioner under section 280 of the Revenue Act of 1926 for a tax of $43,044.78 alleged to be due from L. Vogelstein & Co., Inc., a dissolved corporation. FINDINGS OF FACT. Under date of December 23, 1926, the Commissioner addressed a letter to the petitioner which provided in part: As provided in Section 280 of the Revenue Act of 1926, there is proposed for assessment against you the amount of $43,044.78 constituting your liability as a transferee of the assets of the L. Vogelstein*2484 and Company, Incorporated, New York, New York, for income and profits taxes in the amount of $43,044.78 due from L. Vogelstein and Company, Incorporated, for the year 1920, as shown in the attached statement. The attached statement simply shows a deficiency from L. Vogelstein & Co., Inc., for the year 1920 of $43,044.78. It further shows: Careful consideration having been given to the statements contained in your protest executed October 20, 1926, and discussed in the conference held in this *948 office December 2, 1926, the adjustments shown in Bureau letter dated September 16, 1926, are sustained. The records of this office indicate that L. Vogelstein and Company, Incorporated, was dissolved and the assets transferred to you during the year 1921. The petition filed February 18, 1927, shows in part as follows: 1. The Petitioner is an individual with principal office at 61 Broadway, New York, N.Y. 2. The notice of deficiency (a copy of which is attached and marked Exhibit "A") was mailed to the Petitioner on December 23, 1926. 3. The taxes in controversy are income and profits taxes for the calendar year 1920 and for $43,044.78 alleged to be due from a*2485 dissolved corporation, L. Vogelstein and Company, Incorporated, New York, N.Y., which taxes the respondent proposes to assess against your Petitioner under the provisions of Section 280 of the Revenue Act of 1926. 5. The facts upon which the Petitioner relies as the basis of this proceeding are as follows: (a) The Petitioner, Ludwig Vogelstein, during the year 1920 was the principal stockholder in the corporation, L. Vogelstein and Company, Incorporated, (hereinafter referred to as the company) which company was legally dissolved in the year 1921 and its assets distributed in liquidation to the Petitioner. The allegations of petitioner above stated are admitted by the respondent in his answer. OPINION. SMITH: Upon the hearing of the above entitled proceeding the petitioner and the respondent were represented by counsel. It was the contention of the petitioner that he was entitled to judgment of no liability upon the ground that the respondent had not sustained the burden of proof imposed upon him by section 602 of the Revenue Act of 1928, which added to Title IX of the Revenue Act of 1926, sections 912 and 913. It was the contention of the petitioner that before liability*2486 for the tax of the corporation would attach the respondent - must show what assets he [petitioner] received, the amount of assets, the value of the assets and perhaps many other factors which go into a cause of action which could be maintained by the Government had it proceeded in a court of law, or in a court of equity to reach these assets, either under the trust fund doctrine, under an express or implied agreement, or otherwise as a transferee might be liable * * *. Section 280 of the Revenue Act of 1926, so far as is material, provides: (a) The amounts of the following liabilities shall, except as hereinafter in this section provided, be assessed, collected, and paid in the same manner and subject to the same provisions and limitations as in the case of a deficiency in a tax imposed by this title (including the provisions in case of delinquency in payment after notice and demand, the provisions authorizing distraint and proceedings in court for collection, and the provisions prohibiting claims and suits for refunds): *949 (1) The liability, at law or in equity, of a transferee of property of a taxpayer, in respect of the tax (including interest, additional amounts, *2487 and additions to the tax provided by law) imposed upon the taxpayer by this title or by any prior income, excess-profits, or war-profits tax Act. Section 602 of the Revenue Act of 1928 provides: Title IX of the Revenue Act of 1924, as amended, is further amended by adding at the end thereof two new sections to read as follows: "TRANSFEREE PROCEEDINGS "Sec. 912. In proceedings before the Board the burden of proof shall be upon the Commissioner to show that a petitioner is liable as a transferee of property of a taxpayer, but not to show that the taxpayer was liable for the tax. "Sec. 913. Upon application to the Board, a transferee of property of a tax payer shall be entitled, under rules prescribed by the Board, to a preliminary examination of books, papers, documents, correspondence, and other evidence of the taxpayer or a preceding transferee of the taxpayer's property, if the transferee making the application is a petitioner before the Board for the redetermination of his liability in respect of the tax (including interest, penalties, additional amounts, and additions to the tax provided by law) imposed upon the taxpayer. Upon such application the Board may require*2488 by subpoena, ordered by the Board or any division thereof and signed by a member, the production of all such books, papers, documents, correspondence, and other evidence within the United States the production of which, in the opinion of the Board or division thereof, is necessary to enable the transferee to ascertain the liability of the taxpayer or preceding transferee and will not result in undue hardship to the taxpayer or preceding transferee. Such examination shall be had at such time and place as may be designated in the subpoena." All that the petitioner has admitted in his petition is that he was the principal stockholder in the corporation, L. Vogelstein & Co., Inc.; that that company was legally dissolved in 1921; and that its assets were distributed in liquidation to the petitioner. We have no knowledge as to whether those assets had any value. If they did not, the petitioner has no liability as a transferee. We think that the proper interpretation of section 912 of the Revenue Act of 1926, added by section 602 of the Revenue Act of 1928, is that the burden of showing the extent of the liability of a transferee of property of a taxpayer is upon the Commissioner*2489 and that the Commissioner has not borne that burden by merely showing that the petitioner, by his own admissions, has received in liquidation the assets of a dissolved corporation, which itself may have been liable for a tax, without showing what value, if any, the assets in question had at that time. See . Judgment of no liability will be entered for the petitioner.