Rauh v. Commissioner

CHARLES S. RAUH, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. Rauh v. Commissioner Docket No. 19226. United States Board of Tax Appeals 22 B.T.A. 662; 1931 BTA LEXIS 2093; March 10, 1931, Promulgated *2093 1. Henry Cappellini et al.,14 B.T.A. 1269, followed. 2. The respondent has failed to sustain the burden of proof that the petitioner is liable as a transferee within the meaning of section 280 of the Revenue Act of 1926. 3. The statute of limitations does not bar the collection of the liability here in controversy. Frank C. Olive, Esq., for the petitioner. J. A. Lyons, Esq., for the respondent. MORRIS *662 This proceeding is for the determination of a liability asserted against the petitioner as transferee of the assets of The American Sanitary Lock Corporation for 1919 in the amount of $2,028.88. The petition alleges error on the part of the respondent in the following particulars: (1) Respondent erred in determining and assessing against American Sanitary Lock Corporation any income and profits taxes for the year 1919 for the reason that said corporation was not incorporated and did not begin any operations of any kind until the month of April, 1920; (2) Respondent erred in determining that this petitioner was a transferee of the assets of The American Sanitary Lock Corporation; (3) Respondent erred in*2094 determining or attempting to determine that liability in the amount of $2,028.88 or any other amount exists or ever existed or is or ever was assessable to collectible against this petitioner under section 280 of the Revenue Act of 1926 as the alleged transferee of the assets of The American Sanitary Lock Corporation, because the provisions of section 280 contravene, are violative of and repugnant to the provisions of section 9 of Article I and of sections 1 and 2 of Article III and of the 5th Amendment to the Constitution of the United States; *663 (4) Respondent erred in holding and determining that this petitioner is or ever was a "transferee" of The American Sanitary Lock Corporation within the meaning of the provisions of section 280 of the Revenue Act of 1926. At the hearing petitioner amended the petition so as to include the following allegation of error: (5) The respondent erred in that the collection of the alleged deficiency is barred by the statute of limitations, so far as this petitioner is concerned. The facts were stipulated. FINDINGS OF FACT. American Sanitary Lock Company was duly incorporated under the laws of the State of Indiana on October 14, 1912; *2095 it began operations October 14, 1912, and on July 15, 1919, transferred its assets and business to another corporation, to wit, The American Sanitary Lock Company, and thereupon ceased operations. It was legally dissolved November 6, 1919. The American Sanitary Lock Company was duly incorporated under the laws of the State of Indiana on February 16, 1917, but did not begin operations until July 15, 1919, at which time it succeeded to the business theretofore carried on by said American Sanitary Lock Company. On April 12, 1920, a third corporation was formed under Indiana laws, bearing the name American Sanitary Lock Corporation. The properties and business of said The American Sanitary Lock Company were first sold, assigned and transferred to the petitioner, Charles S. Rauh, on April 18, 1920, and on the same day, the petitioner sold, assigned and transferred the same to said American Sanitary Lock Corporation. Said The American Sanitary Lock Company ceased operations on April 18, 1920, and was legally dissolved March 30, 1923. Said American Sanitary Lock Corporation began operating said business on the 18th day of April, 1920, and has continued to own and operate said business*2096 ever since. In his notice of deficiency, dated June 16, 1926, respondent asserted a deficiency against petitioner as transferee of the assets of The American Sanitary Lock Corporation, Indianapolis, Indiana. None of the three above mentioned corporations bears the legal name of The American Sanitary Lock Corporation, their names being as follows, to wit: American Sanitary Lock Company The American Sanitary Lock Company American Sanitary Lock Corporation *664 The following is a true copy of the notice of deficiency: IT:E:RR FKS-60D OFFICE OF COMMISSIONER OF INTERNAL REVENUE, TREASURY DEPARTMENT, Washington, June 16, 1926. Mr. CHARLES S. RAUH, c/o E. Rauh and Sons Fertilizer Co., Union stock Yards, Indianapolis, Ind. SIR: As provided in Section 280 of the Revenue Act of 1926, there is proposed for assessment against you the amount of $2,028.88 constituting your liability as transferee of the assets of The American Sanitary Lock Corporation, Indianapolis, Ind., for an unpaid income and profits tax in the amount of $2,028.88 assessed against The American Sanitary Lock Corporation, for the year 1919, as per attached statement. In accordance*2097 with the provisions of section 274 of the Revenue Act of 1926, you are allowed 60 days from the date of mailing of this letter within which to file a petition for the redetermination of this deficiency. Any such petition must be addressed to the United States Board of Tax Appeals, Earle Building, Washington, D.C., and must be mailed in time to reach the Board within the 60-day period, not counting Sunday as the sixtieth day. Where a taxpayer has been given an opportunity to file a petition with the United States Board of Tax Appeals and has not done so within the 60 days prescribed and an assessment has been made, or where a taxpayer has filed a petition and an assessment in accordance with the final decision on such petition has been made, the unpaid amount of the assessment must be paid upon notice and demand from the Collector of Internal Revenue. No claim for abatement can be entertained. If you acquiesce in this determination and do not desire to file a petition with the United States Board of Tax Appeals, you are requested to execute a waiver of your right to file a petition with the United States Board of Tax Appeals on the enclosed Form A, and forward it to the Commissioner*2098 of Internal Revenue, Washington, D.C., for the attention of IT:R:P-7. In the event that you acquiesce in a part of the determination, the waiver should be executed with respect to the items to which you agree. Respectfully, D. H. BLAIR, Commissioner. By (Signed) C. R. NASH, Assistant to the Commissioner. Enclosures: Statement Waiver - Form A. STATEMENT IT:CA:2446-2-60D In re: The American Sanitary Lock Corporation, 825 South Meridian Street, Indianapolis, Indiana. Deficiency in Tax [1919] $2,028.88 Period January 1 to May 31, 1920 36.86 Period June 1 to December 31, 1920 415.72 [1921] NONE Total 2,481.46 *665 The above is based upon an audit of the report of the Internal Revenue Agent in Chicago at Indianapolis, Indiana, dated December 12, 1924, which has been approved. The change in your tax liability for the period ended May 31, 1920 results from the allowance of the full specific exemption of $2,000.00 for that period since the return for such period was the last one filed by the American Sanitary Lock Corporation. The change for the period from June 1 to December 31, 1920, results from the allowance*2099 of the full specific exemption of $2,000.00 since the return for this period was the original return of the American Sanitary Lock Corporation. Prior to April 12, 1920, Charles S. Rauh, the petitioner, became the owner of the entire capital stock of The American Sanitary Lock Company. On April 18, 1920, Charles S. Rauh, the petitioner, purchased all the property and assets of The American Sanitary Lock Company and on the same day sold said property and assets to American Sanitary Lock Corporation in consideration of the transfer to him of common stock of said American Sanitary Lock Corporation, of the par value of $119,500. On October 18, 1924, a waiver covering the income taxes of "The American Sanitary Lock Co." was signed by the president under a stamped name "American Sanitary Lock Corp." of which stamped name the last two letters, "r" and "p," were deleted by a line drawn with pen and ink. At such time The American Sanitary Lock Company was legally dissolved. The income tax return for the year 1920 was entitled "The Amer. San. Lock Co." and signed by stamp "American Sanitary Lock Corp." and by pen and ink "Leo Kahn" opposite the printed word "President" and "Chas. S. *2100 Rauh, L. K." opposite the printed word "Treasurer." The petitioner filed his original petition August 11, 1926, in which he stated the facts on which he relied were: (a) American Sanitary Lock Corporation had never transferred its assets to him and was still operating as a going concern. (b) American Sanitary Lock Corporation was not in existence any part of the year 1919 and incurred no tax liability in that year. On September 26, 1928, petitioner filed his amended petition in which he raised a jurisdictional point now sought to be presented by this stipulation of facts. OPINION. MORRIS: The facts bearing upon what the parties have termed a "jurisdictional point" are that there were three separate corporations, with slightly different names, all organized and incorporated under the laws of the State of Indiana, and apparently all engaged in the same or a similar business with the same or substantially the same owners or stockholders. American Sanitary Lock Company operated from 1912 to July 15, 1919, when its business was transferred *666 to The American Sanitary Lock Company, which operated from that date until April 18, 1920, when its property and business*2101 were "sold, assigned and transferred to the petitioner," who, on the same day "sold, assigned and transferred" them to the third company, American Sanitary Lock Corporation. Thus, it will be observed, the only difference between the name referred to in the respondent's deficiency notice and the name of the company which actually operated in 1919 and which transferred its assets to the petitioner is that the respondent's designation concluded with the word "Corporation" instead of the word "Company." The petitioner contends that he can not be held liable as a transferee, on the ground that the deficiency notice charges him with being a transferee of The American Sanitary Lock Corporation, whereas, if he was a transferee at all, he was transferee of the property and assets of The American Sanitary Lock Company. The liability sought to be collected is for 1919 and although the respondent's designation of the transferor was not entirely correct, it is clear that he did not refer to American Sanitary Lock Corporation, because that corporation was not in business in the taxable year in controversy and, furthermore, it does not appear that any transfer of assets from that company*2102 has ever been made. We are of the opinion, therefore, that a merely formal defect of this nature, in a case of this sort, where the intendment has been made clear and unmistakable, can not in and of itself defeat the liability of the petitioner under section 280, supra. The third issue herein, attacking the constitutionality of section 280 of the Revenue Act of 1926, must be disposed of in accordance with Henry Cappellini et al.,14 B.T.A. 1269, holding that the petitioner invoked section 280 of the Revenue Act of 1926 to secure a redetermination may not question its validity. The remaining issues, therefore, although four in number, present only two questions for determination, namely: (a) Is the collection of the said amount barred by the statute in so far as the petitioner is concerned? and (b) Is the petitioner a transferee and therefore liable for the payment of the proposed deficiency under section 280, supra? The petitioner predicates the question of whether the collection of the tax is barred by the statute of limitations, upon a technical defect in a waiver filed for "The American Sanitary Lock Co." on or about October 18, 1924. The*2103 body of that waiver shows that it covered the tax liability of "The American Sanitary Lock Co.," which is the same company considered as the transferor hereinabove, that it covered the taxable year 1919, and it was signed "American Sanitary Lock Co., by Leo Kahn, President." In other *667 words, the petitioner contends that because of the omission of the word "The" the said waiver was ineffective to stay the running of the statute. With this we can not agree. What actually happened is clear. When a waiver was requested for The American Sanitary Lock Co. for 1919 in 1924, that company was out of business, so that Kahn used the rubber stamp of "American Sanitary Lock Corp." striking therefrom the letters "rp" in "Corp.," undoubtedly meaning to conform to the title of the company intended, but failing to add the word "The" in front of the title. The stipulated facts show clearly that Kahn was president of "The American Sanitary Lock Co." and that it was that company's tax liability for 1919 intended to be covered by said waiver; therefore, the mere fact that the word "The" was omitted from the name of the company does not invalidate and render void a waiver which in all other*2104 respects is perfectly valid. See Fidelity Storage Corporation,18 B.T.A. 517. Having so decided, the further question is whether the petitioner is liable as a transferee of the assets of The American Sanitary Lock Company. Section 602 of the Revenue Act of 1928 provides that: 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. The stipulated facts show in one place that the properties and business of the taxpayer were "sold, assigned and transferred" to the petitioner, and in another place that the petitioner "purchased all of the property and assets" of the taxpayer. Those are the vital facts submitted to sustain the burden of proof that the petitioner is liable as a transferee. Without more, such agreed facts, instead of sustaining the burden of proof that the petitioner is liable as a transferee, would tend to indicate that he may have been a bona fide purchaser for value in the due course of business instead and, therefore, not liable as a transferee under the doctrine laid down in *2105 Metropolitan Securities Corporation,19 B.T.A. 299. This is especially true when considered in the light of other deficiencies in proof and when we consider that the respondent, knowing that the burden of proof rested upon him to substantiate the liability of the transferee, unqualifiedly agreed that the transaction constituted a "purchase" and "sale." It does not definitely appear in the stipulated facts that the petitioner was even a stockholder at the time of such transfer, and, therefore, we can not indulge in what might otherwise be a logical presumption, if such fact has been proven, that he merely surrendered his stock and distributed the assets to himself in dissolution *668 any more than we can presume that because he had previously acquired all of the taxpayer's capital stock he continued to be, and was at the time of such transfer, still a stockholder. Furthermore, it is well settled that the petitioner, as a transferee, can be held as such only to the extent of the value of the property received from the taxpayer. *2106 Lillian Burke,21 B.T.A. 45. And it is incumbent upon the respondent, as a part of his burden of proof, to show that the property alleged to have been received had such value. Ludwig Vogelstein,16 B.T.A. 947. Here again we find the stipulated facts deficient and again we assert that we can not presume that because the assets purchased or acquired were immediately sold to American Sanitary Lock Corporation for its common stock, having a par value of $119,500, that the value of the assets received from the taxpayer had that value or any other specific value. All of these things should have been proven by the respondent. They can not be supplied by us through pure conjecture. See Frances W. Haines,20 B.T.A. 721; Phil Gleichman,17 B.T.A. 147; and Joseph A. Steinle, Administrator, et al.,19 B.T.A. 325. Therefore, for the above and foregoing reasons we are of the opinion that the respondent has failed to sustain the burden of proof that the petitioner is liable as a transferee as required by section 602, supra. Decision will be entered for the petitioner.