McLennan v. Commissioner

A. R. MCLENNAN, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. McLennan v. Commissioner Docket No. 26730. United States Board of Tax Appeals 25 B.T.A. 1052; 1932 BTA LEXIS 1437; March 30, 1932, Promulgated *1437 1. A notice of liability under section 280 of the Revenue Act of 1926 was mailed within one year after the expiration of the statute of limitations against the original taxpayer. Held that such notice was timely. 2. Where a stockholder receives assets of a corporation on liquidation, he becomes liable as a transferee for any unpaid Federal taxes due by such corporation, subject to the restrictions set out in Grand Rapids National Bank,15 B.T.A. 1166. W. C. Stevens, Esq., and E. E. Zumwalt, C.P.A., for the petitioner. E. A. Tonjes, Esq., for the respondent. LANSDON *1052 The respondent has determined that under the provisions of section 280 of the Revenue Act of 1926 the petitioner is liable for the unpaid income and profits taxes of the Thirty-One Oil Company for the years 1917, 1918, and 1921, in the respective amounts of $19,227.77, $50,497.89, and $18,117.19. At the hearing his counsel admitted that at the date of the deficiency notice the statute of limitations had run against the asserted liabilities for the years 1917 and 1918. The petitioner denies any liability under section 280, asserts that the statute*1438 of limitations had run against the liability asserted for 1921 and alleges that the Commissioner erred in determining the profits derived from the sale of an oil and gas lease in 1921. FINDINGS OF FACT. The petitioner is a resident of Breckenridge, Texas. The Thirty-One Oil Company, herein designated the taxpayer, was an Oklahoma corporation, organized on March 7, 1916, with authorized capital stock of the par value of $25,000, all of which, on March 16, 1916, was issued to E. M. Woodward, M. S. Simpson, A. R. McLennan, N. A. Robertson and Guy C. Robertson, in the respective amounts of $12,500, $3,125, $3,125, $3,125 and $3,125, in exchange for their interests in a certain oil and gas lease which was assigned to the taxpayer. The contract acquired by the corporation, as above set out, was an agreement between E. M. Woodward, owner of the fee of the certain 20 acres of land herein involved, and M. S. Simpson, which was entered into at Ringling, Oklahoma, on January 3, 1916, with a *1053 supplemental agreement executed at Bedford, Iowa, on February 16, 1916. Upon the acquisition of such agreement and supplemental to it, the taxpayer became obligated to complete the*1439 terms thereof. From the somewhat diffuse oral testimony adduced at the hearing, we find that, under the terms of the contract acquired in exchange for stock, the taxpayer was obligated to drill a well on the land in question and that, if production in excess of 150 barrels per day were developed, then to drill a second well. The first well was completed late in March or early in April and was tested at about 160 barrels daily production; the second well was drilled in on May 2, 1916, and tested a daily production of about 200 barrels. Upon the completion of the second well the promoters became entitled to a one-half interest in the property and the fee owner to the other one-half. Such interests are evidenced by a promotion agreement executed on March 1, 1916, and by corporate action and issue of stock on March 15, 1916, as set out above. Some time in 1921 the taxpayer sold its interests in the 20-acre tract in question for $57,000, and distributed that amount ratably to its shareholders. The petitioner owned one-eighth of the stock of the taxpayer at date of such distribution and received the sum of $7,100. In 1922 the taxpayer abandoned its remaining property, a lease*1440 that then had no value, and thereafter had no property or assets of any description. Its charter was canceled by the Corporation Commissioner of Oklahoma on December 23, 1923, for nonpayment of taxes and it was finally dissolved on January 25, 1926. The taxpayer filed its income-tax return for 1921 and March 14, 1922. On August 2, 1926, the respondent advised the taxpayer that he had assessed the amount of $18,117.19 against it as income and profits tax for the year 1921. OPINION. LANSDON: Upon the record it is clear that the petitioner received assets of the taxpayer in liquidation of his stock in the amount of $7,100. He is liable to the extent of such receipts for any unpaid Federal income and profits taxes of the taxpayer for the year 1921. ; ; affd., ; . ; *1441 . The taxpayer's return was filed on March 14, 1922, and four years thereafter, or on March 13, 1926, the statute ran against any tax liability thereon unless extended by waiver or operation of law. The *1054 respondent has produced no waiver extending the time. The petitioner contends that as there is no enforceable liability against the taxpayer for its unpaid taxes for 1921 there can be none against him as a transferee. This might be true, except for section 280(b) of the Revenue Act of 1926, which as to time of assessment thereunder provides as follows: "* * * Within one year after the expiration of the period of limitation for assessment against the taxpayer." The four-year period established in the Revenue Act of 1921 and applicable here expired on March 13, 1926, and the one year after ended on March 12, 1927. The liability assessment was made on February 26, 1927, well within the "one year after" and was timely. ; *1442 ; . Petitioner's counsel on brief relies on section 280(b)(2), which is not in point, since, by its express terms, it applies only when the limitation period ended before the passage of the act. The Revenue Act of 1926 was passed on February 26, 1926, and the taxpayer's limitation period here ended on March 13, 1926, after that date. The only error pleaded as to the deficiency asserted against the taxpayer for 1921 in the amount of $18,117.19 is that the profit derived from the sale of the oil and gas lease in question was erroneously computed by the Commissioner. Such profit was determined upon the theory that the property was acquired by the Thirty-One Oil Company on March 7, 1916, in exchange for its stock issued at that date. The petitioner contends that, regardless of the date of the issue of stock, the taxpayer did not acquire title to the property until May 2, 1916, when the second producing well was drilled and the taxpayer's obligations under the contract were fully discharged. Whether the transaction was completed at the first or second date is not material, *1443 since the consideration in either event was the stock of the taxpayer. All the evidence adduced by the petitioner on this issue relates to the value of the leasehold after the wells were drilled in and is immaterial, since the profit arising from the sale of capital assets must be determined by using the cost of the asset sold as the basis for the computation. The record establishes no cost of the property when acquired or at any other date as a basis for determining gain or loss other than that used by the Commissioner in his determination of the deficiency asserted against the taxpayer. On this issue the respondent is affirmed. Decision will be entered under Rule 50.