White Eagle Oil & Ref. Co. v. Commissioner

WHITE EAGLE OIL & REFINING CO., PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. White Eagle Oil & Ref. Co. v. Commissioner Docket No. 30448. United States Board of Tax Appeals 19 B.T.A. 185; 1930 BTA LEXIS 2465; February 28, 1930, promulgated *2465 1. Where petitioner has pleaded and proved that the statutory time for assessment of a tax has run the burden of proving an extension of such time is upon the Commissioner. 2. After a Kansas corporation has dissolved an instrument executed in its name by a vice president and purporting to extend the period within which a tax may be determined and assessed against it is insufficient to accomplish that purpose in the absence of any proof that execution thereof was authorized by a majority of the trustees in dissolution or that such vice president was empowered to act for the trustees. James P. Kem, Esq., and Louis E. Hanson, C.P.A., for the petitioner. J. E. Mather, Esq., and J. A. Lyons, Esq., for the respondent. PHILLIPS *185 The Commissioner determined a deficiency in income and profits taxes in the amount of $68,158.70, due from the White Eagle Petroleum Co., Kansas City, Mo., for the period January 1 to June 30, 1919, and has asserted the liability for these taxes against petitioner as transferee of the assets of the White Eagle Petroleum Co. The *186 petitioner brings this proceeding for a redetermination of its liability. *2466 It is alleged that the Commissioner erred (1) in determining that petitioner was a transferee of the assets of the White Eagle Petroleum Co. in contemplation of law; (2) in asserting a deficiency against petitioner for the reason that the cause of action and remedy therefor was at the time of the issuance of the 60-day letter barred by the statute of limitations; and (3) in asserting the deficiency against petitioner as transferee under section 280 of the Revenue Act of 1926, for the reason that said section is unconstitutional. FINDINGS OF FACT. Petitioner is a corporation organized in May, 1919, under the laws of the State of Delaware and maintained an office at 1400 Federal Reserve Bank Building, Kansas City, Mo. The White Eagle Petroleum Co. was a Kansas corporation engaged in the business of refining oil and petroleum. In 1919 it had outstanding 3,000 shares of no-par stock. The last meeting of its board of directors at which officers were elected was held March 3, 1919, at the offices of the company in Wichita, Kans. At this meeting the following officers were elected: President, L. L. Marcell. Vice president, R. R. Irwin. Secretary, Milo T. Jones. Assistant*2467 secretary, C. A. Irwin. Treasurer, A. N. Allen. Assistant treasurer, Gertrude Montague. R. R. Irwin was elected manager for the ensuing year. On March 2, 1920, the White Eagle Petroleum Co. filed an income-tax return for the year 1919, which consisted of a blank and unsigned form of corporation income and profits-tax return, with the following affidavit attached: We, L. L. Marcell, President, and C. A. Irwin, Assistant Secretary, of the above named corporation, being severally sworn, each for himself deposes and says that the White Eagle Petroleum Company, a corporation, while continuing its corporate existence, has had no transactions for the year ending December 31, 1919. That the said corporation has no capital stock outstanding, no assets or liabilities, and is permanently out of business. (Signed) L. L. MARCELL, President. C. A. IRWIN, Ass't Secretary. (Seal) SWORN TO AND SUBSCRIBED before me this 1st day of March AD 1920. (Signed) GERTRUDE MONTAGUE, Notary Public. My commission expires October 1st 1922. (Seal) *187 L. L. Marcell and C. A. Irwin were president and assistant secretary, respectively, of the White Eagle Petroleum*2468 Co. at the time this affidavit was executed by them. Between June 30, 1919, and December 31, 1919, the petitioner acquired all the assets of the White Eagle Petroleum Co. in exchange for 72,000 shares of its capital stock. This stock was distributed among the stockholders of the White Eagle Petroleum Co., each stockholder receiving 24 shares of petitioner's stock for one share of White Eagle Petroleum Co. stock. The assets so acquired had a value in excess of all liens thereon greater than the amount of the liability now asserted against the petitioner. On December 31, 1919, the White Eagle Petroleum Co. had no assets and did not thereafter engage in business. It was legally dissolved on January 17, 1925, following the adoption of a resolution of the stockholders to dissolve. On March 13, 1925, there was received in the Bureau of Internal Revenue the following instrument, which was executed under the corporate seal of the White Eagle Petroleum Co. by L. L. Marcell, president: DECEMBER 11, 1924. (Date) INCOME AND PROFITS TAX WAIVER. In pursuance of the provisions of subdivision (d) of Section 250 of the Revenue Act of 1921, White Eagle Petroleum Company, of Kansas*2469 City, Missouri, and the Commissioner of Internal Revenue, hereby consent to a determination, assessment, and collection of the amount of income, excess-profits, or war-profits taxes due under any return made by or on behalf of the said Corporation for the year 1919, under the Revenue Act of 1921, or under prior income, excess-profits, or war-profits tax acts, or under section 38 of the Act entitled "An Act to provide revenue, equalize duties, and encourage the industries of the United States, and for other purposes," approved August 5, 1909. This waiver is in effect from the date it is signed by the taxpayer and will remain in effect for a period of one year after the expiration of the statutory period of limitation, or the statutory period of limitation as extended by any waivers already on file with the Bureau, within which assessments of taxes may be made for the year or years mentioned. WHITE EAGLE PETROLEUM COMPANY, Taxpayer. (Corporate seal) By (Signed) L. L. MARCELL, President. Commissioner. The name of D. H. Blair was written over the word "Commissioner" on or about March 13, 1925, by S. M. Greenidge, head of the engineering division. *188 *2470 On January 25, 1926, there was received in the engineering division of the Bureau of Internal Revenue, the following instrument: INCOME AND PROFITS TAX WAIVER FOR TAXABLE YEARS ENDED PRIOR TO JAN. 1, 1922. IT:EN:OG WHC JANUARY 21, 1926. In pursuance of the provisions of existing Internal Revenue Laws White Eagle Petroleum Company, a taxpayer of 1400 Federal Reserve Bank Building, Kansas City, Mo., and the Commissioner of Internal Revenue hereby waive the time prescribed by law for making any assessment of the amount of income, excess-profits, or war-profits taxes due under any return made by or on behalf of said taxpayer for the year (or years) 1919 under existing revenue acts, or under prior revenue acts. This waiver of the time for making any assessment as aforesaid shall remain in effect until December 31, 1926, and shall then expire except that if a notice of a deficiency in tax is sent to said taxpayer by registered mail before said date and (1) no appeal is filed therefrom with the United States Board of Tax Appeals then said date shall be extended sixty days, or (2) if an appeal is filed with said Board then said date shall be extended by the number of days between*2471 the date of mailing of said notice of deficiency and the date of final decision by said Board. WHITE EAGLE PETROLEUM COMPANY, Taxpayer. (Corporate seal) By (Signed) R. R. IRWIN, Vice Pres. Commissioner. If this waiver is executed on behalf of a corporation, it must be signed by such officer or officers of the corporation as are empowered under the laws of the State in which the corporation is located to sign for the corporation, in addition to which, the seal, if any, of the corporation must be affixed. The name "D. H. Blair" was written over the word "Commissioner" on or about January 26, 1926, by H. F. Mires, acting head of the engineering division. Said Mires purported to act under authority of a letter signed by D. H. Blair, Commissioner of Internal Revenue, dated November 1, 1925, and delivered November 6, 1925, reading as follows: NOVEMBER 1, 1925. Mr. H. F. MIRES, Acting Head, Engineering Devision. Until further notice, you are hereby authorized to sign my name to all waivers which have been or may hereafter be submitted in connection with assessments for 1921 and prior years. In each case, however, your initials should appear immediately*2472 under this signature. Please retain this document as a part of the permanent files of the Bureau as evidence of your authority in the matter. (Signed) D. H. BLAIR, Commissioner. *189 The Commissioner determined a deficiency in the amount of $68,158.70 for the period from January 1, 1919, to June 30, 1919, against the White Eagle Petroleum Co., which was assessed on December 31, 1926, together with interest in the amount of $3,463.95. On June 17, 1927, the Commissioner sent to the petitioner a deficiency letter, the first paragraph of which recites: As provided in Section 280 of the Revenue Act of 1926, there is proposed for assessment against you the amount of $68,158.70, constituting your liability as a transferee of the assets of the White Eagle Petroleum Company, Kansas City, Missouri, for income and profits taxes in the amount of $68,158.70 due from the White Eagle Petroleum Company for the period January 1 to June 30, 1919, as shown in the attached statement and accompanying schedules. The petitioner duly instituted this proceeding for a redetermination of its tax liability. D. H. Blair was Commissioner of Internal Revenue during each of the years*2473 1925, 1926, and 1927. OPINION. PHILLIPS: The petitioner contends that it should not be held liable for the deficiency here in question, because (1) section 280 of the Revenue Act of 1926 is unconstitutional; (2) the proposed assessment is barred by the statute of limitations; and (3) no liability of petitioner in law or in equity has been shown to exist. The question of the unconstitutionality of section 280 of the Revenue Act of 1926 was urged in . What was said in that case is applicable here. We there held that where a transferee had invoked the provisions of this section by appealing to the Board, he was precluded in such proceeding from questioning its validity. On March 2, 1920, the White Eagle Petroleum Co. filed a form of corporation income and profits-tax return. There was attached to this form, and forming a part of it, an affidavit signed by the president and assistant secretary of the corporation and having affixed to it the corporate seal. This affidavit recited that the taxpayer had had no transactions during the year ending December 31, 1919; that it had no assets or liabilities and was permanently*2474 out of business. This document was intended by the taxpayer as a return and was so treated by the Commissioner from the time of its receipt by him in 1920 up to the time he filed his amended answer to the petition for determination in 1929. The schedule attached to the return gives the Commissioner all the information which could have been obtained had the word "none" been written in on the form after each item of income listed. We think the document filed by the White *190 Eagle Petroleum Co. March 2, 1920, was a return within the meaning of the Revenue Act. It is not claimed that there was any fraud involved. On December 11, 1924, the White Eagle Petroleum Co. by its president executed a so-called waiver consenting to the extension, for the period of one year, of the time within which assessment and collection of the amount of income, excess-profits, or war-profits taxes due under any return for 1919 made by it or in its behalf, might be made. This consent was received by the Bureau of Internal Revenue and purports to have been signed on behalf of the Commissioner by an authorized agent on or about March 13, 1925, more than five years after the original return was*2475 filed and after the statute had run on assessment and collection of the tax. The petitioner contends that this instrument is invalid because it was not executed by the Commissioner or, if it was, the execution took place after the statute had run. We find it unnecessary to pass on either contention. If it was valid it did not extend the period for assessment and collection beyone March 2, 1926. The White Eagle Petroleum Co. was dissolved on or about January 17, 1925. Thereafter on January 21, 1926, an instrument purporting to extend the time to December 31, 1926, within which the assessment of the amount of income, excess-profits, or war-profits taxes due under any return made by or on behalf of the White Eagle Petroleum Co. for the year 1919 might be made, was executed by R. R. Irwin, purporting to act as vice president of the White Eagle Petroleum Co., and the corporate seal of that company was affixed. This was received in the engineering division of the Bureau of Internal Revenue on January 25, 1926. Petitioner questions the effectiveness of this instrument on several grounds, the only one which we find it necessary to consider being whether it was executed by the taxpayer. *2476 It was signed "white Eagle Petroleum Company, taxpayer, by R. R. Irwin, vice president." The last corporate election of the company was held March 3, 1919. At that meeting R. R. Irwin was elected vice president of the company. Thereafter the officers held over until the dissolution of the corporation. Section 17-808 of the Revised Statutes of Kansas, 1923, provides as follows: Directors as trustees in cases of dissolution; their powers and duties. Upon the dissolution of any corporation already created by or under the laws of this state, unless a receiver is appointed by some court of competent authority, the president and directors, or managers of the affairs of the corporation, at the time of the dissolution, by whatever name they may be known in law, shall be trustees of the creditors and stockholders of such corporation, with *191 full power to settle the affairs, collect the outstanding debts, and divide the moneys and other property among the stockholders, after paying the debts due and owing by such corporation at the time of its dissolution, as far as such money and property will enable them, and for this purpose they may maintain or defend any judical proceeding. *2477 The record does not disclose the appointment of a receiver, and since the corporation had no assets and the minutes of the dissolution meeting recite that it had no liabilities, such a proceeding would have been unnecessary. The return of the taxpayer was signed March 2, 1920. The assessment of the deficiency here in question was made December 31, 1926. These facts are evidence of the petitioner's allegation that the assessment was barred by the statute of limitations. Petitioner having made its prima facie case, the burden rested upon respondent to show that the statute had not run. . A necessary step was to establish that the instrument dated January 21, 1926, was executed by the parties having authority to act for and bind the dissolved corporation. We had occasion to consider a similar situation in , and there held that the burden was on the respondent of proving that the agreement which he alleges and upon which he relies as extending the period for assessment is validly executed. We have been unable to find any decisions of the courts of Kansas which would aid us*2478 in determining the manner in which the trustees in dissolution are to act for the corporation. The generally accepted law is that any action by trustees must be authorized by a majority and we see no reason to doubt that such is the proper construction of the Kansas statute. We have examined the record in vain for any evidence which might establish that execution of the instrument dated January 21, 1926, signed by R. R. Irwin after the dissolution of the corporation, was authorized by the trustees or that Irwin had general or special authority to act for them in this matter. It should be noted that the instruments executed before dissolution were signed by the president of the corporation. Upon authority of our decision of , and the cases therein cited, we find that the assessment of the deficiency here in question was barred by the statute of limitations prior to December 31, 1926. It is unnecessary to consider whether petitioner was a transferee of the assets of the taxpayer within section 280 of the Revenue Act of 1926. Decision will be entered for petitioner.