McGowin-Foshee Lumber Co. v. Commissioner

MCGOWIN-FOSHEE LUMBER CO., PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. McGowin-Foshee Lumber Co. v. Commissioner Docket No. 34466. United States Board of Tax Appeals 20 B.T.A. 223; 1930 BTA LEXIS 2171; July 15, 1930, Promulgated *2171 The petitioner is a transferee of the McGowin-Foshee Lumber Co. of Alabama and is liable for the income and profits taxes due from that company for the years 1918 and 1919. H. C. Kilpatrick, Esq., for the petitioner. Elden McFarland, Esq., for the respondent. MARQUETTE *223 This proceeding is for the redetermination of liabilities which the respondent has asserted against the petitioner as a transferee of the McGowin-Foshee Lumber Co. of Alabama on account of income and profits taxes claimed to be due from the McGowin-Foshee Lumber Co. in the amount of $1,694.44 for the year 1917, $13,812.07 for the year 1918, and $41,879.47 for the year 1919. The liabilities asserted herein are the full amount of said taxes. *224 FINDINGS OF FACT. The McGowin-Foshee Lumber Co., taxpayer, was, during the years 1917, 1918, and 1919, and until November 29, 1926, a corporation organized and existing under the laws of Alabama, with its principal office and place of business at Falco, Ala. It was engaged in the lumber business and it owned property in Alabama and in Florida. The capital stock of the corporation was $100,000, divided into 1,000 shares*2172 of the par value of $100 each. J. I. Robbins was president, J. F. McGowin, vice president, B. M. Robbins, secretary, and J. A. Robbins, treasurer of the corporation, and J. I. Robbins, J. F. McGowin and B. M. Robbins constituted its board of directors. Prior to November 26, 1926, the property of the taxpayer located in Alabama became exhausted and it was decided by the stockholders thereof to dissolve the taxpayer and to form a Florida corporation to take over the property of the taxpayer located in Florida. Pursuant to this plan, the stockholders of the taxpayers executed an agreement of dissolution, which is in the words and figures following: State of Alabama, County of Escambia. KNOW ALL MEN BY THESE PRESENTS: That the undersigned constituting all of the stockholders of the McGowin-Foshee Lumber Company, a corporation organized under the laws of the State of Alabama, desiring to dissolve the said corporation, do hereby agree with the said corporation and the officers thereof, and mutually with each other, that the said corporation be and the same is hereby dissolved in accordance with the provisions of Section 7063 of the Code of Alabama of 1923, and we, the said stockholders, *2173 do hereby declare the said corporation duly legally and regularly dissolved. IN TESTIMONY WHEREOF, we have hereunto set our hands and seals this the 26th day of November, A.D. 1926. Said agreement of dissolution was filed with, and recorded in the Probate Court in and for Escambia County, Alabama, on November 29, 1926. On December 3, 1926, the persons who had been stockholders of the taxpayer at the time the resolution to dissolve was adopted, held a meeting and adopted the following resolution: WHEREAS, this corporation was organized and chartered under the laws of the State of Alabama; and WHEREAS, all of the property of said corporation located in the State of Alabama has been disposed of and the remaining assets are now all situated in the State of Florida, and the officers of said company, with the exception of one director are residents of the State of Florida; and WHEREAS, the stockholders, by agreement and declaration executed in accordance with the laws of the State of Alabama, have dissolved the Alabama corporation; and *225 WHEREAS, all the debts of the company have been satisfied and it is the desire of the stockholders to reorganize the company*2174 under the laws of the State of Florida; therefore, BE IT RESOLVED, that the officers of this company be, and they are hereby authorized, empowered and directed to enter into all contracts and do all things necessary to complete the organization of the corporation organized under the laws of the State of Florida, having the identical stock of this corporation, to-wit: One thousand shares of the par value of $100 each, and that all the property of this corporation, real, personal or mixed, including all moneys and credits, be transferred to said duly organized corporation under the laws of the State of Florida, in consideration of the entire capital stock of said corporation, and that the said president and secretary be and they are hereby authorized, directed and empowered to distribute said stock of said Florida corporation among the stockholders of this corporation, in the same proportion that the stock in this corporation is now held by its stockholders and that they do all other things that may be necessary and convenient for the purpose of secretary, and J. A. Robbins, treasurer, are, and have been since empowered to incur such expense as may be necessary in the execution of*2175 this plan. On or before December 3, 1926, the petitioner was organized under the laws of Florida with an authorized capital of $100,000, divided into 1,000 shares of the par value of $100 each. On December 3, 1926, at a meeting of the incorporators of the petitioner, J. I. Robbins, J. F. McGowin, and B. M. Robbins were elected as its board of directors and on the same day the following resolution was adopted: BE IT RESOLVED, that all of the capital stock of this corporation be issued to the present stockholders of McGowin-Foshee Lumber Company, a corporation organized under the laws of the State of Alabama, in the same amount and the same proportion as they are now stockholders in said company, upon said corporation conveying to this corporation all of its property and assets; Be it further resolved that the value of the property of said corporation is well known to the incorporators and is greater in value than $100,000 and that the officers of this corporation are authorized to accept transfer of said property in full payment of said stock and to incur any expense that may be necessary in or about effecting the said arrangement. J. I. Robbins, president, J. F. McGowin, *2176 vice president, B. M. Robbins, secretary, and J. A. Robbins, treasurer, are, and ahve been since its organization, the officers of the petitioner. On December 3, 1926, the following instrument was executed in the corporate name of the taxpayer by J. I. Robbins as president, and was delivered to the taxpayer: KNOW ALL MEN BY THESE PRESENTS: that WHEREAS, by resolution of the stockholders of McGowin-Foshee Lumber Company, a corporation organized under the laws of the State of Alabama, and the owner of the property hereinafter described, the officers of said company have been empowered and directed to convey all of the property of said corporation to McGowin-Foshee Lumber Company, a corporation organized under the laws of the State of Florida, in consideration of the issuance to the stockholders of said Florida corporation of *226 all of the stock of the said Alabama corporation, and the distribution thereof among the stockholders of the said Florida corporation in the same proportion, number and amount, as the stock in the said Alabama corporation is held by said stockholders; and, WHEREAS, the organization of the said Florida corporation has now been completed and the*2177 stock has concurrently with the execution of this deed been issued and delivered to the stockholders of the said Florida corporation in the proportions aforesaid; now, therefore, The said McGowin-Foshee Lumber Company, a corporation organized under the laws of the State of Alabama, in consideration of the premises and the sum of one dollar ($1.00) to it in hand paid by McGowin-Foshee Lumber Company, a corporation organized under the laws of the State of Florida, the receipt whereof is hereby acknowledged, has bargained, sold, transferred and conveyed, and by these presents does bargain, sell, transfer, and convey unto the said McGowin-Foshee Lumber Company, a corporation organized under the laws of the State of Florida, its successors and assigns forever, all of the property, real, personal and mixed, and all claims, deposits of money, choses in action and every tangible or intangible owned by it, including the real estate described in that certain conveyance dated June 30th, 1924, made by Martin Van Heuvel and other unto McGowin-Foshee Lumber Company, a corporation organized under the laws of the State of Alabama, which said conveyance appears of record in deed book 71 at page 576, *2178 of the records of Manatee County, Florida, together with the tenements, hereditaments, appurtenances and improvements thereunto belonging or in anywise appertaining, provided, however, that the enumerations of the above property is not in any sense intended to limit in any manner the general description hereinbefore contained, this instrument being intended to vest the grantee with title to everything of any character whatsoever owned or held by the grantor and the said grantor covenants that it is well seized of the property above described and has good right to execute this conveyance and that it will warrant and defend the same unto the said grantee, its successors and assigns, against the lawful claims of all and every person or persons whomsoever. IN TESTIMONY WHEREOF, the said grantor has caused these presents to be executed in its corporate name by authority of its stockholders and directors and its corporate seal to be hereto affixed this 3rd day of December, 1926. (Signed) MCGOWIN-FOSHEE LUMBER COMPANY, a corporation organized under the laws of Alabama. By: J. I. ROBBINS, Prest. All of the assets of the taxpayer were thereupon transferred and delivered*2179 to the petitioner and they, or the proceeds thereof, have since that time been held by the petitioner. All of the capital stock of the petitioner was issued directly to the stockholders of the taxpayer in proportion to their holdings in the taxpayer. The net fair market value of the assets of the taxpayer transferred to the petitioner was greater than the amount of the unpaid tax liability of the taxpayer. The directors of the taxpayer have not at any time since November 26, 1926, held any meetings as directors or as trustees in dissolution of the taxpayer. On December 6, 1927, the respondent mailed to the petitioner a letter asserting against it, as a transferee of the taxpayer, a liability *227 in the amount of $57,385.98 on account of income and profits taxes claimed to be due from the taxpayer for the years 1917, 1918, and 1919. OPINION. MARQUETTE: There is no dispute as to the amount of taxes due and owing from the Alabama corporation. The parties hereto have stipulated that the tax liability of that corporation for the year 1917 has been duly satisfied; that on May 12, 1928, this Board in *2180 McGowin-Foshee Lumber Co. (the Alabama corporation) v. , entered a final order of redetermination finding deficiencies in income and profits taxes in the amounts of $13,514.95 for 1918 and $20,925.71 for 1919, and that the decision and final order of redetermination are correct. On December 15, 1928, pursuant to that decision and order, the deficiencies were assessed by the respondent, together with interest in the amount of $2,272.18 for 1918 and $3,518.10 for 1919, and credits have been applied against the assessments in the amount of $2,849.65 for 1918. No payment of principal or interest has been made for 1919. It follows that there is no liability on the part of the petitioner for any taxes of the taxpayer for 1917, and that the maximum liability for 1918 and 1919, if there is any liability, is the unpaid part of the deficiencies as determined by the Board for those years in Docket No. 10446, together with such interest as is allowed by statute. The petitioner, while conceding the liability, and the amount thereof, of the taxpayer for taxes and interest for 1918 and 1919, contends that there is no liability on its part for such*2181 taxes and interest for the reason that: (1) Section 280 of the Revenue Act of 1926 is unconstitutional; (2) that the respondent has failed to show that he has exhausted his remedies against the taxpayer corporation and the trustees in dissolution, and (3) that he has failed to establish a conveyance of assets of the taxpayer to the petitioner. The first contention of the petitioner will be dismissed under authority of , wherein we held that a transferee may not seek a redetermination by the Board under section 280 of the Revenue Act of 1926, and at the same time question the validity of that section. That is what the petitioner has done in this case. The second contention of the petitioner is that upon the dissolution of the taxpayer, title to its assets immediately vested in its board of directors, as trustees in dissolution, under section 7063 and 7069 of the Alabama Code of 1923, and that the respondent must proceed and exhaust his remedies against the taxpayer and its directors before he can maintain proceedings against the petitioner. In *228 support of this position the petitioner cites *2182 , and . Sections 7063 and 7069 of the Alabama Code of 1923 provide that: 7063. (3510) How to dissolve a corporation. - Whenever the holders of all the capital stock of any corporation shall desire to dissolve the corporation, they may do so by an agreement to that end signed by all the stockholders, whose signatures shall be attested by two witnesses, and the agreement shall be certified by the president or other managing officer of the corporation that the names signed to such agreement constitute all the stockholders of the corporation, which agreement and certificate shall be filed and recorded in the office of the probate judge of county where the corporation was organized, the corporation shall be dissolved and the board of directors shall proceed to settle up and adjust its business and affairs. * * * 7069. (3516) Exist for five years after dissolution by limitation or forfeiture for certain purposes. - Corporations whose charters expire by limitation and which are dissolved by forfeiture or by any other cause, except by judicial decree, exist as bodies*2183 corporate for the term of five years after such dissolution, for the purpose of prosecuting or defending suits, settling their business, disposing of their property, and dividing their capital stock, but not for the purpose of continuing their business; and the directors shall be trustees thereof with full power to settle their affairs, collect their debts, sell and convey the property and divide the moneys and other property among the stockholders, after paying its debts; and may act under the by-laws of the corporation, prescribe the terms and conditions of the sales of the property of the corporation. sue for and recover the debts and property of the dissolved corporation, in the corporate name; and are jointly and severally liable to its creditors and stockholders to the extent of the property which may come into their hands. On application to the circuit court or other court at the principal place of business of the corporation, such trustees may be continued for such length of time beyond such five years as may be necessary for the purpose in this section set forth. It may be stated that by virtue of the sections of the Alabama Code just quoted, the assets of the taxpayer*2184 corporation, upon the filing with the probate court of the resolution of dissolution, passed to the directors of the taxpayer as trustees in dissolution, and that it was their duty to settle up the affairs of the taxpayer, sell and convey its property, and, after paying its debts, to divide the remaining property among the stockholders. But it does not follow that under the circumstances herein it was necessary for the respondent to proceed against either the taxpayer or its directors before taking steps to collect the taxes in question from the petitioner. The taxpayer was dissolved in November, 1926, and in December of that year all of its property was transferred, in possession at least, to the petitioner, which has since that time held possession and control thereof. When the transferee letter was mailed to the petitioner, neither the taxpayer nor the directors thereof had possession of any property belonging to the taxpayer and that fact was known to the respondent. *229 To proceed against the taxpayer would obviously have been useless and futile, and, under the circumstances, was not necessary. *2185 . Nor is there anything in the record to show that an action would lie against the directors. They did not have, after December 3, 1926, any property of the taxpayer in their possession from which payment of the taxpayer's liability could have been made. And there is nothing to indicate that they so acted, either wifully or negligently, as to render themselves personally liable for the taxes in question. The cases cited by the petitioner arose under circumstances distinctly different from those at bar and are not in point here. It is our opinion that the respondent was not required to proceed against either the taxpayer or its board of directors before asserting the liability in question against the petitioner, and that this proceeding should be decided on its merits. This brings us to the question as to whether the petitioner is a transferee of the taxpayer. The petitioner admits that on December 3, 1926, it received in possession, and has held since that time, property theretofore owned and held by the taxpayer, and that the property had a fair market value greater than the liability of the taxpayer for taxes for 1918 and*2186 1919. But the petitioner contends that its title to the property so transferred is not valid because the conveyance was made by J. I. Robbins, as president of the taxpayer, and not by the board of directors acting as trustees in dissolution. It is true that the conveyance was not made by the board of directors as trustees in dissolution, and it may be that in a proper case it could be successfully attacked. But we do not think that in equity either the petitioner or its officers should be heard to question the validity of the petitioner's title in order to avoid subjecting the property to the rights of the taxpayer's creditors. The petitioner still holds the property, or its proceeds, and, while it questions the conveyance by which it received the property, it does not offer to reconvey the property to the taxpayer. Furthermore, it may be pointed out that while the directors of the taxpayer, who are also directors of the petitioner, did not so far as the record shows, specifically, as trustees in dissolution, authorize or make a conveyance of the taxpayer's property, they did, as stockholders, attend and participate in the stockholders' meeting of December 3, 1926, as well as*2187 in the meeting of the incorporators of the petitioner on the same day, and that at such meetings they authorized for the taxpayer and accepted for the petitioner, the conveyance of the taxpayer's assets. We find no irregularity in the conveyance that may be questioned by the petitioner or by its officers or stockholders. The situation as we therefore find it, is that the taxpayer in 1926 conveyed to the petitioner property having a value greater than the *230 amount of taxes owing by the taxpayer for 1918 and 1919, and that in consideration thereof the petitioner paid directly to the stockholders of the taxpayer, all of its, the petitioner's, capital stock. The petitioner is, therefore, liable for the unpaid taxes of the taxpayer for 1918 and 1919. ; ; ; ; ; *2188 . Judgment will be entered for the respondent.