Kinnett-Odom Co. v. Commissioner

KINNETT-ODOM CO., PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. Kinnett-Odom Co. v. Commissioner Docket No. 20659. United States Board of Tax Appeals 19 B.T.A. 1124; 1930 BTA LEXIS 2261; May 26, 1930, Promulgated *2261 TRANSFEREE - LIABILITY. - Where the petitioner purchased from the taxpayer its tangible assets only, and taxpayer retained its cash, bills and accounts receivable, and stock on hand, and respondent did not prove that the value of these retained assets was less than the amount of the tax, and there is no evidence of bad faith, there is no liability of petitioner under section 280. J. R. Sherrod, Esq., for the petitioner. J. A. Lyons, Esq., for the respondent. BLACK *1124 The taxes sought to be recovered from the petitioner as a transferee under section 280 are deficiencies in income and profits taxes of the Kinnett Coal & Ice Co., of Macon, Ga., and are as follows: 1918, $3,529.17; 1919, $1,689.07; 1920, $165.69; and 1921, $78.15. Errors alleged in the amended petition were (1) that the petitioner was not liable at law or in equity as a transferee because only a part of the taxpayer's assets were transferred to it and taxpayer retained sufficient assets to pay taxes in controversy; (2) that the taxpayer should be allowed a deduction on account of a loss sustained on the sale of its branch at Columbus, Ga.; (3) that adequate allowance had*2262 not been made for depreciation of the assets of the Kinnett Coal & Ice Co.; and (4) the taxes for the years 1918 and 1919 were barred by the statute of limitations. By an order of the Board, the hearing was limited to the consideration and decision of the first and fourth points, namely, (1) liability as transferee under section 280, and (4) bar of the statute of limitations of 1918 and 1919 taxes. FINDINGS OF FACT. The Kinnett Coal & Ice Co. was a corporation, with its principal office and place of business at Macon, Ga. It was engaged in the coal, ice, and ice-cream business during the taxable years and was dissolved in May, 1923. The petitioner, Kinnett-Odom Co., is a corporation engaged in the coal, ice, and ice-cream business, with its principal place of business at Macon, Ga. It was organized in 1922. On account of unsatisfactory business conditions in 1921 and prior thereto it was determined to merge or consolidate several companies operating in the vicinity of Macon, Ga. This resulted in the organization of the petitioner, Kinnett-Odom Co., which was chartered in 1922 and acquired from the Kinnett Coal & Ice Co. its land, *1125 buildings, machinery, and*2263 trucks, but did not purchase or acquire its stock on hand, its cash, notes, or accounts receivable. These were retained by the Kinnett Coal & Ice Co. The assets acquired by the petitioner exceeded $10,000 in value, though their exact value is not shown, and the value of the assets retained by the Kinnett Coal & Ice Co. does not appear. Shareholders in the Kinnett Coal & Ice Co. received an amount of stock in the Kinnett-Odom Co. equal to that which they held in said Kinnett Coal & Ice Co. at the time of such transfer. The Kinnett Coal & Ice Co. maintained its corporate existence after the sale and transfer of part of its assets to petitioner and was dissolved May 7, 1923. The Kinnett Coal & Ice Co. filed its income and profits-tax return for the calendar year 1918 on May 1, 1919; in February, 1924, the respondent assessed against said company on his assessment list additional taxes for 1918 in the sum of $3,529.17. On March 12, 1920, the Kinnett Coal & Ice Co. filed its tax return for the calendar year 1919 and in May, 1924, the respondent assessed against said company on his May assessment list additional taxes in the amount of $1,689.07 for the calendar year 1919. The statute*2264 of limitations is not pleaded as a bar to the deficiencies for 1920 and 1921, amounting to $165.69 and $78.15, respectively. On August 20, 1926, the respondent mailed to the petitioner, Kinnett-Odom Co., a deficiency notice proposing to assess and collect from it as transferee the additional taxes due from the Kinnett Coal & Ice Co. for the years 1918 to 1921, inclusive, in the total sum of $5,462.08. OPINION. BLACK: In cases arising under section 280 the burden of proof to establish the liability of the transferee (petitioner) is on the respondent. In the recent case of , we had this question before us, and it was there held that, where the transferee corporation purchased all the assets of the taxpayer and paid the taxpayer therefor in shares of its capital stock and no fraud was shown, there was no liability on the transferee, because the taxpayer had assets out of which the taxes could have been collected. In the instant case there is no evidence that the transferor, Kinnett Coal & Ice Co., was left insolvent by the transfer to part of its assets. The respondent introduced no evidence to show the value*2265 of the cash, notes receivable and accounts receivable, and stock on hand which were retained by the Kennett Coal & Ice Co. at the time it transferred its land, buildings and machinery to petitioner. No evidence was introduced to show that after such transfer of part of its assets the Kinnett Coal & Ice Co.*1126 was not able to satisfy fully the Government's claim for taxes as well as its other creditors. The respondent has not sustained the burden of proof and we hold that the petitioner is not liable. Since we have held that petitioner is not liable as transferee it is unnecessary to pass upon petitioner's assignment of error that the taxes for the years 1918 and 1919 are barred by the statute of limitations. Judgment will be entered for the petitioner.