Scamehorn v. Commissioner

W. S. SCAMEHORN, PETITIONER, ET AL., 1v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. Scamehorn v. Commissioner Docket Nos. 48559-48567. United States Board of Tax Appeals 27 B.T.A. 155; 1932 BTA LEXIS 1116; November 28, 1932, Promulgated *1116 Liabilities of transferees determined. W. R. Alban, Esq., and J. R. Little, Esq., for the petitioners. J. G. Gibbs, Esq., for the respondent. LANSDON *155 The respondent has asserted liabilities against the several petitioners in the respective amounts of $3,000, $2,000, $2,000, $2,000, $1,000, $1,000, $5,846.68, $5,846.68 and 5,846.68 as transferees of the assets of the Steubenville Gazette Company, against which has been determined a deficiency in income tax for the year 1925, in the amount of $5,846.68. The only issue is whether such petitioners are liable for the unpaid tax of the corporation as transferees of its assets. The several proceedings have been consolidated for hearing. FINDINGS OF FACT. The Steubenville Gazette Company, hereinafter called the company, was an Ohio corporation, incorporated in 1901, which published a newspaper at Steubenville until about July 1, 1925, when it was sold to the Herald Printing Company of that city. All the assets of such corporation, except certain lands, buildings and accounts receivable, were sold, including all machinery, supplies, personal property, circulation structure and good*1117 will used in connection with the publication and business of the newspaper, for a cash consideration of $100,000. In the liquidation or settlement with stockholders, the land and buildings were taken over by petitioners Cohen and Paisley, at a valuation of $53,000, subject to a mortgage in the amount of $14,500. Petitioners Cohen and Paisley acted for the company in the negotiation for the sale and handled the liquidation which followed. They received the purchase money, $100,000, and therefrom paid each of the other stockholders $125 per share for the stock not held by themselves and received and canceled the stock certificates thus called and redeemed. They also paid outstanding obligations in the amount of approximately $40,000. Such distributions and payments left in their hands approximately $22,500 in cash, and lands and buildings, and accounts receivable of the nominal value of about $13,000 but which were actually worthless and for which nothing was realized. *156 The company deeded the lands and buildings to one Roland W. Frieder, who afterwards transferred his legal title therein to Cohen, who thereafter transferred his interest to Paisley for a consideration*1118 of $15,000 and the assumption of a mortgage thereon in the amount of $14,500. Subsequent to his acquisition of the property Paisley paid Cohen $7,500 on the purchase price thereof. The issue stock of the company at the date of sale consisted of approximately 920 shares, of which Cohen and Paisley each owned about 300 shares. Alban, Alexander King, and Flora King and Scamehorn owned respectively 60, 20, 20 and 20 shares of stock and in the liquidation each received $125 per share for such stock. The company duly filed its income tax returns for the year 1925 and computed a tax due thereon in the amount of $1,017.48 and at the date of such filing paid $254.37 thereon. At a later date the Commissioner abated the balance of $763.11. At a subsequent date and prior to the running of the statute of limitations he assessed additional tax, including interest, in the amount of $5,904.46. On January 17, 1929, a warrant of distraint for the collection of such additional tax was issued and later the collector reported that the deputy was unable to serve the same because "the charter of this company was cancelled by the Tax Commission of the State of Ohio on February 15, 1923, and there*1119 were no assets of the Company in existence after November 1, 1926." On February 28, 1930, the notices of liability which are the bases of these proceedings were mailed to the petitioner. OPINION. LANSDON: Within the statutory period of limitations the respondent determined and assessed a tax against the company for the year 1925. A warrant of distraint was issued and it was found that the taxpayer was no longer in existence and had owned no assets after November 1, 1926. In these circumstances we are satisfied that the respondent properly decided that the tax could not be collected from the taxpayer, and that his subsequent procedure under section 280 of the Revenue Act of 1926 was in conformity with the law. The record of these proceedings is needlessly confusing, but it is clear that the company sold certain of its assets for $100,000 and retained others which, at the time, were valued at $53,000, subject to a mortgage in the amount of $14,500. There is no question that the stock of the minority shareholders was liquidated at $125 per share. It is equally clear that, after the payments to such minority stockholders and the discharge of the debts of the company, there*1120 were *157 left in the possession of Cohen and Paisley about $22,500 in cash and title to the real property and accounts receivable that were not included in the sale. In a settlement between themselves Paisley acquired Cohen's interest in the real estate for $15,000, of which he has paid $7,500 in cash. It is obvious, therefore, that Cohen and Paisley each received assets of the corporation in liquidation of his stock in excess of the amount of the deficiency determined against the taxpayer. We think it follows that each is liable for the unpaid taxes of the company, in conformity with the rule established in , and a long line of decisions based thereon. Each of the minority stockholders received $125 per share in the liquidation of his interest in the company, and to the extent of such receipts was a transferee of the assets of the taxpayer. Counsel for petitioners admitted at the hearing that Alban, Alexander King, Flora King and Scamehorn owned stock of the company at the date of liquidation in the respective amounts of 60, 20, 20, and 20 shares and that based on that ownership each received $125 per share*1121 in liquidation. Such stockholders, therefore, were transferees of the assets of the company in the respective amounts of $7,500, $1,200, $1,200 and $1,200, and, to the extent of the amounts received, each is liable, under section 280 of the Revenue Act of 1926, for the unpaid taxes of the company for the year 1925. The record contains no competent and persuasive evidence that petitioners McLister, Wolpert and Strayer were stockholders of the company at the date of the liquidation thereof. We hold, therefore, that their liability as transferees has not been established. Petitioners adduced some fragmentary evidence for the purpose of overcoming the presumption that the respondent's determination of the deficiency against the company is correct. Most of such testimony was to the effect that the value of assets disposed of by sale exceeded the basis used by the respondent in his determination of profit derived therefrom. Even if the value alleged had been proved, it could not be material, since the basis for determining gain or loss on the sale of capital assets is the cost thereof and not their value at the time of the sale. *1122 On this issue the respondent is affirmed. Decisions will be entered for the respondent in the proceedings at Docket Nos. 48559, 48560, 48561, 48565, 48566 and 48567, and for the petitioners at Docket Nos. 48562, 48563 and 48564. Footnotes 1. Proceedings of the following petitioners are consolidated herewith: Flora B. King; Alexander King; Frank McLister; Urban F. Wolpert; Walter A. Strayer; W. R. Alban; R. B. Cohen; Jay S. Paisley. ↩