Jacob v. Commissioner , 47 B.T.A. 381 ( 1942 )

AGNES C. JACOB (ALLEGED TRANSFEREE), PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

SHIRLEY MAY JACOB (ALLEGED TRANSFEREE), PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

BEVERLY JEAN JACOB (ALLEGED TRANSFEREE), PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

GWENDOLYN E. JACOB (ALLEGED TRANSFEREE), PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

Jacob v. Commissioner

Docket Nos. 108032, 108033, 108034, 108035.

United States Board of Tax Appeals

47 B.T.A. 381; 1942 BTA LEXIS 697;

July 23, 1942, Promulgated

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In 1936 Jacob with Conley and Barnes acquired a certain hotel property and transferred it to a newly organized corporation, each receiving one-third of the capital stock. Jacob had advised petitioners, his wife and daughters, that he was going to give them part of the stock to be received by him, but because of an agreement with a creditor of the corporation to hold control until the debt was paid, he could not immediately transfer the shares to them. The hotel burned and the debt was paid from the fire insurance. Immediately upon payment of the debt, Jacob had 99 of his 100 shares of stock issued in the names of the petitioners, after which the net insurance proceeds were distributed in equal parts among the Conley, Barnes, and Jacob stock, leaving the corporation insolvent. Respondent determined a deficiency against the corporation and transferee liability therefor against Jacob, Barnes, and Conley, who filed petitions with the Board contesting such liability. The proceedings were settled by agreement and pursuant to the agreement decisions for the deficiency were entered against the three petitioners as transferees. It was later developed that the corporation had failed to pay the income tax shown on its return and the respondent determined that these petitioners were the owners of 99 shares of the Jacob stock at the time the insurance proceeds were distributed and were liable as transferees for the unpaid tax. Petitioners were the owners of the 99 shares at the time of the distribution of the net insurance proceeds and Jacob, acting for them, received their respective shares of the money distributed. Held, that the respondent is not estopped to assert transferee liability against the petitioners and that the prior proceeding in which Jacob sought to litigate his individual liability as transferee is not res judicata in these proceedings; held, further, that the petitioners are liable as transferees of the corporation to the extent of their respective shares in the amounts received by Jacob for them.

S. J. Bischoff, Esq., for the petitioners.

John Pigg, Esq., for the respondent.

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TURNER

The Central Holding Co. filed an income and excess profits tax return for the fiscal year ended June 30, 1938, showing liability for income tax and excess profits tax in the respective amounts of $3,163.80 and $2,844.02, or a total of $6,007.82. No part of either the income tax or the excess profits tax so reported has ever been paid. The respondent has determined that the petitioners were transferees of assets of the Central Holding Co. and proposes to assess against them as such transferees the following indicated amounts, plus interest as provided by law:

	Docket No.	Amount
Agnes C. Jacob	108032	$4,901.30
Shirley May Jacob	108033	5,105.52
Beverly Jean Jacob	108034	5,105.52
Gwendolyn E. Jacob	108035	5,105.52

FINDINGS OF FACT.

The petitioners are residents of Portland, Oregon. Petitioner Agnes C. Jacob is the wife of Robert T. Jacob and the other three petitioners are their daughters. Gwendolyn E. Jacob was born on August 28, 1917, Shirley May Jacob on October 10, 1918, and Beverly Jean Jacob about 1923. From about 1921 until 1926 Robert T. Jacob was employed in the office of the collector of internal revenue at Portland, Oregon. Upon his admission to the bar in 1926 he began the practice of law in Portland, where he has since continued to practice. Since his admission to the bar he has devoted a considerable portion of his time to handling income tax matters before the Bureau of Internal Revenue, the Board of Tax Appeals, and the Federal courts and holds himself out as an expert in Federal income tax law. In 1936 and for some undisclosed period thereafter Jacob had an office-sharing arrangement with James L. Conley, another attorney. Conley is not experienced in and does not engage in the practice of income tax law.

In June 1936 E. W. Barnes, a client of Conley, held a contract for the purchase of a hotel property known as the Welcome Hotel, which property consisted of land, buildings, furniture, fixtures, and equipment located in Burns, Harney County, Oregon, about 330 miles from Portland. Under the contract Barnes could acquire the hotel property on the payment of $18,000 in cash, it being understood, however, that the property was to pass with approximately $22,000 in state, county, and city taxes, both real and personal, standing against it. Barnes was unable to finance the purchase of the property and at the suggestion of Conley took up the matter with Jacob, who arranged with one of his clients, named Farrell, for a loan of $15,000. Barnes, Conley, and Jacob agreed that they would advance $1,000 each; that they would organize a corporation to take title to and operate the property; and that each of them would receive one-third of the stock of the corporation. The corporation, known as the Central Holding Co., was organized under the laws of Oregon on June 20, 1936. Farrell made the loan of $15,000 as agreed, taking a mortgage on the property as security, and Conley and Barnes borrowed $3,000 from Jacob to be applied on the purchase price of the property, it being agreed between them that, since Jacob had been instrumental in obtaining the $15,000 from Farrell, Conley and Barnes should contribute the $1,000 he was to pay under the original agreement. The loan of $3,000 was subsequently repaid to Jacob by Barnes and Conley.

The Central Holding Co., sometimes referred to as Central, took title to the hotel property and on July 1, 1936, began its operations. Upon formation of Central, Barnes became president and manager of the hotel. Conley was vice president. He prepared the corporate minutes, kept the stock records, and handled the corporation's legal affairs. Jacob was secretary-treasurer and his duties were to keep the corporation's books of account, except such as were kept at Burns under Barnes' supervision, prepare the corporation's income tax returns, and handle its tax matters.

Central was organized with a capital stock consisting of 300 shares of no par value common stock. One of the conditions upon which Farrell made the loan of $15,000 was that control of the corporation should be vested in Jacob until the loan was paid. Accordingly at the time of organization a certificate for 100 shares of stock was issued to Jacob; certificates for one share, 26 1/2 shares, and 72 1/2 shares, respectively, were issued to Barnes, and certificates for 26 1/2 shares and 73 1/2 shares, respectively, were issued to Conley; and Conley and Barnes thereupon endorsed their certificates for 26 1/2 shares each and gave them to Jacob, to be returned to them after Farrell had been paid. Barnes endorsed his certificate for 72 1/2 shares to his wife, Olive G. Barnes, and it was placed in Conley's safe, no transfer of the stock being made at that time on the books of the corporation. A few months later, however, the transfer was mede on the books and a certificate issued to Mrs. Barnes.

Barnes was the active manager of the hotel at Burns throughout the time it was operated by Central. Because of complaints by Jacob as to Barnes' management, one complaint being that Barnes was extravagant, friction and unpleasantness developed between them.

Central continued to operate the hotel until July 15, 1937, when the main building, together with all of its contents, was destroyed by fire. The boiler room with an apartment above was all that was not destroyed. At the time of the fire Central was carrying fire insurance on the property as follows: $54,000 on the building with Lioyd's of London, $5,000 on the furniture with United Fireman, and $5,000 on the furniture and $8,000 on the building with the Lumberman's Underwriter's Association, or a total of $72,000 on the building and furniture.

Upon learning that the hotel was burning Conley advised Jacob and they had a brief discussion as to the probable future course of the corporation in event there should be a complete destruction by the fire. Jacob expressed the desire, in the event of complete destruction, to discontinue his connection with the corporation. On the second day after the fire Conley went to Burns and Barnes asked him what he and Jacob thought about rebuilding. Conley replied that Jacob wanted "to take his money and get out" but that he, Conley, would join in rebuilding if they could do so without going very heavily into debt. After some discussion Barnes asked that Jacob and Conley give him their stock in the event they did not desire to continue. Conley replied that he was agreeable to the proposal and would submit the matter to Jacob upon his return to Portland. When advised of Barnes' request Jacob also assented to the proposal. Barnes regarded the corporation as more or less of a nuisance but disired to continue its existence because of his belief that corporate financing would be easier than personal financing in the event he should be able to continue in the hotel business.

A few days after Conley's return from Burns Barnes came to Portland. He wanted to rebuild the hotel, but Conley and Jacob told him that they had decided against participation in such a plan. As a consequence it was decided to distribute the corporation's assets, Conley and Jacob agreeing that they would give their stock in the corporation to Barnes for whatever use he might thereafter care to make of the corporation.

By the time of the fireCentral had reduced the state, county, and city taxes standing against its property from $22,000 to $16,000 or $17,000 and the loan from Farrell had also been greatly reduced.

By August 12, 1937, the proceeds of the three insurance policies totaling $18,000 had been collected and all debts or liabilities of Central, exclusive of state, county, and city taxes, and its Federal income tax, had been paid. The balance due Farrell had been paid prior to the end of July, either from the insurance proceeds or from a bank loan which in turn was paid from the insurance proceeds. After payment of the above items a balance of $7,266.32 remained and it was decided that this balance should be distributed to the stockholders. Division of this balance into three parts indicated that each group of stockholders was entitled to $2,422.10. Five thousand dollars had been sent to a bank at Burns, from which Barnes had paid some small debts of Central ($204.07 to Conley in cash and a note in the amount of $1,384.08 owing by Conley to the bank) and had transferred $3,000 to his personal account. Some $2,600 or $2,700 had been turned over to Jacob. Since both Barnes and Jacob had received cash in excess of the amount allocable to the stock represented by them, payments were made by them to Conley in amounts sufficient to equalize the three parts at $2,422.10. This was accomplished at a meeting of the three on August 12, 1937, at which time each of them signed a receipt to Central showing that $2,422.10, being one-third of the above net proceeds of insurance, had been received. The receipts signed by Conley and Barnes were signed, "Jas. L. Conley" and "E. W. Barnes", respectively, while the receipt signed by Jacob was signed as follows:

R. T. JACOB

for AGNES C. JACOB

GWEN JACOB

SHIRLEY JACOB

BEVERLY JACOB

A few days after the above settlement $54,000, being the amount due under the insurance policy with Lloyd's of London, was received and on August 17, 1937, Barnes, Conley, and Jacob met at the First National Bank in Portland and divided the sum so received, each one receiving $18,000. In connection with this distribution no receipts were signed. After this second distribution Central was left with no property or assets except the property upon which the hotel at Burns had stood. The value of that property was not in excess of $10,000, while state, county, and city taxes were outstanding against it to the extent of $16,000 or $17,000. The property was later lost to the county in delinquent tax proceedings. As a result of the distribution of the insurance proceeds Central was rendered insolvent and unable to pay its debts.

At or about the time Central was organized and the hotel at Burns was acquired, Jacob showed a picture of the hotel to his wife, Agnes C. Jacob, and his daughters, the other petitioners herein, and told them he was going to give each of them a portion of the stock received by him in the corporation. Shortly after Central was organized he reiterated that promise and took his wife to Burns to see the hotel where they stayed for several days. When the stock of Central was issued, Jacob did not have any of the stock coming to him issued in the names of his wife and daughters but had the entire 100 shares issued in his name. His reason for not having the stock issued to the petitioners at that time was that he had promised Farrell that he would retain control of the corporation until Farrell had been repaid by Central. The 100 shares issued in his name, plus the 26 1/2 shares each issued in the names of Barnes and Conley and by them endorsed and delivered to Jacob, constituted 51 percent of Central's outstanding stock. As soon as the Farrell loan was paid in July 1937, Jacob returned to Barnes and Conley the certificates received from them as indicated. At the same time or shortly thereafter Jacob had the 100 shares of stock standing in his name reissued in five different certificates - one share to himself, 24 shares to his wife, Agnes C. Jacob, and 25 shares each to his three daughters. At the time these certificates were issued his wife and daughters were at the beach. He mailed the certificates to his wife, requesting that they be endorsed and returned to him. She knew that the certificates received were related to "The Welcome Hotel" and were the shares of stock that Jacob had promised to give to her and their daughters. The shares were endorsed as requested and returned to Jacob within a few days. At no time after the issuance of the 100 shares of Central stock in his name did Jacob consider that he was the beneficial owner thereof but at all times considered that his wife and daughters were the beneficial owners. At the time the fire insurance proceeds were distributed by Central the Jacob stock was owned one share by Jacob, 24 shares by his wife, and 25 shares each by the three daughters.

Jacob retained the certificates endorsed by the petitioners as set forth above in his possession until final distribution of the insurance proceeds on August 17, 1937, after which on either the same day or the day following they were given by him to Barnes. At or about the same time Conley gave his certificates to Barnes and he and Jacob submitted their resignations as directors and officers of Central.

Shortly after the burning of the hotel at Burns, Barnes acquired six lots in Hines, Oregon, on which stood a partially constructed building known as the Hines Hotel. The property had been acquired by Harney County for nonpayment of taxes and was sold to Barnes for $2,809.27. Barnes took title to the property in his own name, receiving two deeds - one dated August 4, 1937, from the county judge and commissioners of Harney County and the other a quitclaim deed dated July 24, 1937, from the Pondosa Investment Co., former owner of the property. By quitclaim deed also dated August 4, 1937, Barnes conveyed the property to his wife, Olive G. Barnes. The $2,809.27 used by Barnes in making the purchase was part of the $3,000 received by him in the first distribution of insurance proceeds by Central and was covered by the settlement between Jacob, Conley, and Barnes on August 12, 1937.

On November 29, 1937, Barnes and his wife conveyed the Hines Hotel property and certain other lots located in Hines to Central. About the same time Barnes negotiated the purchase of a hotel in Arlington, Gilliam County, Oregon, the purchase to be made in the name of Central. The purchase price was stated at $50,000 and was to be paid by a purchase money mortgage for approximately $24,000, the assumption of accrued taxes of approximately $5,000, the conveyance of the Hines Hotel property and some of the additional lots at $15,000, and the remainder in cash. The $15,000 at which the Hines Hotel property and lots at Hines were included was greatly in excess of their actual value. The cash consideration was paid by Barnes and represented a portion of the insurance proceeds received by him from Central on August 17, 1937. While title to the Arlington property was taken in the name of Central under a deed of conveyance dated December 15, 1937, Barnes had requested Conley, who had represented him in the transaction, to have the property transferred to him before the end of 1937. Conley did not carry out the instructions immediately, however, and the property continued to stand in the name of Central until the September of 1938, when it was conveyed to Barnes or his wife or to both of them.

Central was dissolved on January 6, 1941, by proclamation of the Governor of Oregon and its articles of incorporation were revoked because of its failure for two consecutive years preceding that date to file the statements or pay the license fees required by law.

For the calendar year 1937 Jacob prepared income tax returns for each of his three daughters. On each of the returns was shown a net income of $3,958.43 and a tax liability of $106.34. No deductions were shown on the returns and the only item of income on each was shown as having resulted from a sale or exchange in August 1937 of 25 shares of stock in Central, acquired in June 1936. The basis for the stock was shown at $157.48 and the amount received at $5,105.52. Only 80 percent of the gain was shown as taxable, on the ground that the stock had been held for more than one year but not over two years. Jacob also prepared the income tax return of Mrs. Jacob for 1937, on which was shown a net income of $4,734.08 and a tax liability of $206.72. Of said income $3,800.10 was shown as having resulted from the sale or exchange in August 1937, of 24 shares of stock in Central, acquired in June 1936 at a cost or other basis of $151.17, 80 percent of the gain being shown as taxable for the reason that the stock had been held for over one year but not over two years. At the time their returns were prepared Gwendolyn E. Jacob and Shirley May Jacob were at school in Dallas, Texas, and Jacob sent the returns to them, with instructions that they be executed and returned to him. The returns were signed and sworn to on March 7, 1938, and returned to Jacob as requested. Beverly Jean Jacob executed her return on March 15, 1938, at the request of Mrs. Jacob. The returns for the three daughters were filed with the collector for the district of Oregon on March 15, 1938. Both Jacob and his wife filed their returns for 1937 on April 15, 1938, extensions of time for such filing having been previously obtained. Jacob's return showed a net income of $23,048.11 and a tax liability of $1,975.19. Included in taxable income was an amount of $15,833.75 shown as gain resulting from the sale or exchange on August 8, 1937, of 100 shares of stock in Central, acquired on June 22, 1936. The basis for the stock was shown at $629.91 and the amount received at $20,422.10. Only 80 percent of the gain was shown as taxable on the ground that the stock had been held for over one year but not over two years. Attached to the return was a statement which reads as follows:

Filed concurrently with this return, which includes all of the profit from disposition of stock of the Central Holding Company, are separate returns of Agnes C. Jacob, Gwendolyn E. Jacob, Shirley May Jacob, and Beverly Jean Jacob, in each of which has also been included proportionate divisions of the same profits. It is obvious, of course, that the profit is not taxable upon both theories, but this method of reporting the income attributable to the transaction seems to be required by the circumstances. Due to many questions which are presented in connection with gifts, such as motives, date of actual transfer, effectiveness of the gift, etc., there is lack of harmony in the holdings of cases relating to the taxability of the income in such situations, and, if a return were not filed in this manner, and it is ultimately determined that the income is taxable to the undersigned alone, interest would accrue because the tax was not paid upon its due date. On the other hand, if it is determined that the income is taxable to the donees and no returns have been filed, such returns would be delinquent and penalties incurred by reason thereof. Upon completion of payment of the tax, claims for refund will be filed and the rights of the respective claimants thereupon sought to be determined.

The circumstances also seem to require the filing of gift tax returns for the year 1937, although the gifts were in fact purported to have been made in 1936. It was my original purpose to make a division of the shares at the time of the incorporation of the Central Holding Company, but this plan was frustrated in the first instance by conditions imposed by Mr. Robert S. Farrell, who supplied the funds for the purchase of the Welcome Hotel property which gave rise to the profit in question. Mr. Farrell supplied said funds upon the specific condition that the undersigned retain control of the property thus acquired through the ownership of 51% of the equity therein. This condition is set forth in his letter of May 27, 1936, addressed to me, which reads in part:

"I will loan you and your associates the sum of $15,000 on the Welcome Hotel at Burns, Oregon, upon the following conditions:

(3) That you own at least 51% of the equiry in the property above described."

Notwithstanding the above referred to exactions, shortly after the formation of the Central Holding Company, I informed the members of my family that I was giving them shares of the corporation's stock.

While this promise was made, it should be pointed out that the stock was in fact neither issued nor delivered to the donees until the latter part of July or the early part of August, 1936, at about the time the mortgage to Mr. Farrell was paid. In this connection, it should also be pointed out that while the certificates were issued and delivered at this time, they were dated as of the date of the original date of incorporation. However, stamps covering two transfers, one from myself to the members of my family and from them to Barnes, were affixed to photostatic copies of said certificates retained by me.

The tax liabilities shown on the income tax returns of Jacob, Mrs. Jacob, and the daughters were paid in installments during 1938.

On April 20, 1938, Jacob filed with the collector a gift tax return signed and sworn to by him on April 15, 1938, which return showed no tax liability. In this return he reported the gift to Mrs. Jacob of 24 shares of stock in Central of a value of $4,901.30 and showed love and affection as his motive for making the gift. He also reported the gift to each of his daughters of 25 shares of stock in Central of a value of $5,105.52 and showed "College Educations" as his motive for making the gifts. Attached to the return was an affidavit executed by him on April 15, 1938, which reads as follows:

I Robt. T. Jacob, being first duly sworn, depose and say:

That failure to file the gift tax returns to which this affidavit is affixed within the time required by law, was not due to any intent to evade taxation or to avoid responsibility therefor, but, in accordance with the facts set forth in connection with income tax returns filed concurrently herewith, it is my belief that the gifts were in fact made in 1936. Due to the fact that the stock was purchased in 1936 at a nominal consideration, its value was not sufficient to require the filing of a return in that year, but should I be mistaken in my position, and if the gift was not in fact consummated until 1937, then its value requires the filing of returns on Forms 709-710. Accordingly same are submitted herewith.

No extension of time for filing was requested as affiant was neither sick nor absent.

On April 20, 1938, there were filed with the collector information returns of gifts, prepared by Jacob, for Mrs. Jacob and the daughters. On their returns each daughter reported the gift to her in 1937 of 25 shares of stock in Central of a value of $5,105.52. On her return Mrs. Jacob similarly reported the gift to her of 24 shares of stock in Central of a value of $4,901.30. The returns of Shirley May and Gwendolyn E. Jacob were dated March 23, 1938, while those of Mrs. Jacob and Beverly Jean Jacob were dated March 13, and March 14, 1938, respectively.

In December 1938 a revenue agent made an investigation of the 1937 income tax returns of Jacob, Mrs. Jacob, and the daughters. In his reports he concluded that the gain on the stock in Central was taxable to Jacob and that Mrs. Jacob and the daughters received gifts of the proceeds from the liquidation of Central rather than gifts of the stock. As to the daughters, he found that they had no tax liability for 1937 and recommended refunds of the taxes paid by them. As to Mrs. Jacob, he recommended a refund of $173.10 based on the elimination from her income of the gain on Central stock. The refunds thus recommended were made by the Commissioner in 1939.

Upon organization Central adopted a fiscal year ending June 30. Jacob prepared its income tax return for the year ended June 30, 1937. Barnes signed and filed the return with the collector for the district of Oregon on September 15, 1937. The return showed a net income of $3,681.90 and a tax liability of $578.59. For the fiscal year ended June 30, 1938, Barnes had an income tax return prepared for Central and filed it with the collector on September 15, 1938. This return showed a net income of $29,950.20 and a tax liability of $6,007.82. The income reported was shown as gain resulting from the fire which destroyed the hotel on July 15, 1937. Upon an audit of the return for the fiscal year ended June 30, 1937, the respondent determined that the correct net income for the year was $17,768.01, that there was a deficiency in tax of $5,312.50, and that the corporation was liable for the 50 percent penalty in the amount of $2,656.25. As a result of the audit of the return for the fiscal year ended June 30, 1938, the respondent determined that the correct net income was $41,328.53 and that there was a deficiency in tax of $2,974.36. On March 17, 1939, he sent a notice to Central advising it of his determination of the above mentioned deficiencies. Thereafter Central filed a petition with the Board for redetermination of the deficiencies for both years. Also on March 17, 1939, the respondent sent notices to Jacob and Conley and to Barnes and his wife advising them of his determination of the above deficiencies and penalties against Central and advising that he proposed to assess such deficiencies and penalties against them as transferees of Central. Jacob and Conley and Barnes and his wife thereafter filed petitions with the Board alleging error in the respondent's determination.

Jacob filed his petition on June 10, 1939, and assigned errors not only as to the respondent's determination of the deficiencies in tax and penalty against Central, but also as to his determination that Jacob was liable for such deficiencies as a transferee of Central. In this petition which was duly verified before a notary public on June 8, 1939, Jacob alleged that prior to the issuance of any shares of stock in Central he promised to make a gift of the shares to his wife and daughters in equal amounts; that pursuant to the requirements of Farrell respecting his loan he continued to hold the 100 shares of stock issued to him until the loan was repaid; that shortly after the fire, but before repayment of the Farrell loan, he (Jacob), acting on behalf of Mrs. Jacob and the daughters, entered into an agreement with Barnes whereby the latter agreed to purchase the 100 shares of stock which he (Jacob) was holding in trust for Mrs. Jacob and the daughters, at an amount equal to the value thereof as determined by an accounting; that after the payment of the Farrell loan and in pursuance of his agreement to give stock to Mrs. Jacob and the daughters, he (Jacob) surrendered the certificate for 100 shares of stock in Central and caused to be executed and delivered in lieu thereof a certificate for one share to himself, a certificate for 24 shares to Mrs. Jacob, and certificates for 25 shares to each of the daughters; that Barnes had a statement prepared of the accounts of the corporation and he (Jacob) accepted payment for the shares in accordance with the corporation's net worth as shown by such statement, receiving $2,422.10 on or about August 12, 1937, and $18,000 on August 17, 1937; and that at the time of payment of the $18,000 he delivered to Barnes the above mentioned certificates of stock which had been issued to himself, Mrs. Jacob, and the daughters, all of which had been endorsed by the respective owners thereof. In his answer the Commissioner denied the foregoing allegations and among other things affirmatively alleged that at the time of the distribution on August 17, 1937, Jacob was a stockholder in Central and that as such stockholder there was distributed to him on that date, without consideration, cash in the amount of $20,422.10. In his reply Jacob denied the foregoing affirmative allegations of the Commissioner.

All of the above proceedings came on for hearing before the Board on November 29, 1939, at Portland, Oregon, when Carl E. Davidson, Esq. , and Ivan F. Phipps, Esq., appeared as counsel for Central, Conley, and Barnes and Mrs. Barnes, S. J. Bischoff, Esq., appeared as counsel for Jacob, and T. M. Mather, Esq., appeared as counsel for the Commissioner. On November 30, 1939, and after the introduction of certain evidence respecting the issue of fraud in the case of Central, but before the production of evidence as to transferee liability of the other parties, the following occurred:

MR. DAVIDSON: May it please your Honor, in the case of the Central Holding Company, as a result of conversations between counsel and some adjustments in the tax liability as a result of disclosures yesterday where capital amounts and loans were erroneously included in income, while the petitioner in this case does not wish to admit the fraud penalty, however, for the purpose of closing the case, it has been agreed between counsel for the respondent and counsel for the petitioner that the Board may enter its decision that there is a deficiency in income tax for the year ended June 30, 1937, in the sum of $2,528.72; that there is a deficiency in excess profits tax for the fiscal year ended June 30, 1937, in the sum of $881.62; that there may be asserted a 50% penalty in the amount of $1,264.36 upon the deficiency in income tax for that year, and a 50% penalty in the amount of $440.81 on the deficiency in excess profits taxes for that year.

It is further stipulated between the parties that there is a deficiency for the fiscal year end June 30, 1938, which is also before the Board, in the sum of $1,875.48 in income taxes, and of $1,098.88 in excess profits taxes.

THE MEMBER: Does the government stipulate that the case may be disposed of by the entry of a decision to that effect?

MR. MATHER: Just one moment, your Honor. That is correct, your Honor.

THE MEMBER: Mr. Bischoff?

MR. BISCHOFF: In the case of Robert T. Jacob, Docket No. 99161, the petitioner, as a result of the same conference that was referred to by counsed, and since the transferor his stipulated that a deficiency may be determined in the amount just set forth for taxes and penalties, and since your Honor his ruled that the transferees are precluded from challenging the transferor's liability, pursuant to the stipulation of the transferor, the petitioner, Robert T. Jacob, while denying the amount of deficiency and the liability for penalty of the transferor, admits that he is transferee, and the decision may be entered against him in the amount set forth in the statement of counsel for the taxpayer.

THE MEMBER: What is the situation with regard to the other transferees? Of course, the transferees are jointly and severally liable.

MR. DAVIDSON: In the case of E. W. Barnes, Transferee, Olive G. Barnes, Transferee, and James L. Conley, Transferee, Docket Numbers 99256, 99257, and 99259, while the transferees do not admit the fraud penalty, inasmuch as it is admitted that a penalty may be entered in the transferor's case, they are foreclosed from contesting that, and they do admit they are transferees, and they consent that the Board may enter its decision in finding a liability for the amount of the deficiency assessed against the transferor in the Central Holding Company case.

THE MEMBER: Do I understand that the transferee is admitting any interest that may be due?

MR. DAVIDSON: The deficiency would necessarily carry the interest.

THE MEMBER: That disposes of this group of cases entirely?

MR. MATHER: That is my understanding.

Pursuant to the stipulation in the case of Central the Board on December 5, 1939, entered its decision determining deficiencies and penalties for the fiscal years ended June 30, 1937, and June 30, 1938, as stipulated. On the same day it entered its decisions in the cases of Jacob, Conley, and Barnes and Mrs. Barnes determining that each of them was liable as a transferee of assets of Central for the deficiencies found against Central but failed to provide in the decisions for interest thereon.

The tax liability of $6,007.82 shown on Central's return for the fiscal year ended June 30, 1938, at the time it was filed, was assessed on October 13, 1938, but no part of it has ever been paid. Notice and demand for the tax was issued by the collector on October 6, 1938, and a second notice and demand was issued on October 18, 1938. On November 9, 1938, a warrant for distraint was issued and on March 7, 1939, lien was filed with the Clerk of the United States District Court at Portland and with the County Clerks of Multnomah County (Portland), Harney County (Burns), and Gilliam County (Condon). Efforts of the collector to collect the tax have been fruitless.

On March 1, 1940, the Commissioner filed with the Board in each of the cases of Jacob, Conley, and Barnes and Mrs. Barnes a motion to vacate the decision entered therein on December 5, 1939, and asking (1) that decisions be entered against each of the parties for transferee liability in an amount equal to the unpaid portion of the orignal tax shown on the returns of Central for the fiscal years ended June 30, 1937, and June 30, 1938, plus the amounts shown in the Board's decisions entered on December 5, 1939, including penalties and interest as provided by law or in the alternative; (2) that the Board vacate and hold for naught the decisions entered on December 5, 1939, and place the proceedings on the calendar for further hearing under Rule 50 in order to permit him to offer formal proof as to the actual total amount of the transferee liability of each of the parties for said fiscal years and to make claim therefor to the extent that said total amount of such liability exceeded the amounts shown in his deficiency notices and in the Board's decisions of December 5, 1939; or, as a second alternative, (3) that the Board vacate its decisions of December 5, 1939, and set the proceedings down for hearing de novo. It was stated in the motions that a portion of the original tax shown on Central's return for the year ended June 30, 1937, and the entire amount of $6,007.82 shown on its return for the year ended June 30, 1938, had not been paid, although demand had been made therefor; that Jacob, Conley, and Barnes and Mrs. Barnes, as transferees of assets, were liable for such taxes; that when the stipulations respecting the transferee liability of the parties were entered into counsel for the Commissioner was unaware of the fact that said original taxes had not been paid but that fact was known to said parties; and that counsel for the Commissioner had only recently learned of the nonpayment of the original taxes. On March 4, 1940, the Board vacated its decisions entered on December 5, 1939, in the cases of Jacob, Conley, and Barnes and Mrs. Barnes and ordered the parties to file with the Board briefs in support of or against the Commissioner's motion. Briefs were filed and at the time the Commissioner filed his brief, on March 27, 1940, he also filed motions for leave to file amended answers. At the time he filed his brief Jacob also filed an affidavit in opposition to the Commissioner's motion to vacate the decisions entered on December 5, 1939. In this affidavit he admitted that at the time of the negotiation and entry of the compromise stipulation of settlement, he and his counsel knew that a portion of the tax shown on Central's return for the year ended June 30, 1937, and all of the tax shown on the return for the year ended June 30, 1938, had not been paid, and stated that no inquiry was made by counsel for the Commissioner as to whether such taxes had been paid, and that he assumed counsel for the Commissioner had knowledge of such fact, and that at the time the compromise stipulation of settlement was negotiated and entered of record there were present at the hearing, among others connected with the Bureau of Internal Revenue, the following persons: J. W. Maloney, collector of internal revenue for the district of Oregon, Walter S. Shanks, chief field deputy in the office of said collector, and R, P. Kueneke, chief of the income tax department of the collector's office, who had in his immediate possession the records from which the payment or nonpayment of such taxes was ascertainable.

On April 9, 1940, the Board denied the Commissioner's motions filed March 1, and March 27, 1940, and on April 10, 1940, entered its decisions holding that Jacob, Conley, Barnes and Mrs. Barnes each was liable as transferee of assets of Central for the deficiencies determined in the decision entered in the case of Central on December 5, 1939, together with interest as provided by law. Jacob has paid his total liability as transferee as thus determined by the Board.

On April 8, 1941, the Commissioner sent notices to the petitioners herein, advising them of his proposal to assess against them as transferees of Central the amounts involved herein with respect to the unpaid income and excess profits taxes of Central for the year ended June 30, 1938.

In 1937, Jacob for these petitioners, and without consideration, received from Central the following indicated amounts of assets, leaving it insolvent and unable to pay its debts:

Agnes C. Jacob	$4,901.30
Shirley May Jacob	5,105.52
Beverly Jean Jacob	5,105.52
Gwendolyn E. Jacob	5,105.52

OPINION.

TURNER: But for the lack of coordination on the part of certain of respondent's employees in their efforts to determine and collect the income and excess profits taxes owing by Central, the existence of friction between the stockholders or persons responsible forCentral's affairs and the lack of candor on the part of these same individuals in their dealings with each other and with their Government in the matter of Central's tax liability, these proceedings should have been entirely unnecessary. The question in issue is the liability of the petitioners as transferees of Central for the income and excess profits taxes reported by Central on its return for the fiscal year ended June 30, 1938. That Central was liable for and owed the tax is not disputed and so far as the record shows has never been disputed. The taxes in question resulted in the main from gain realized through the collection of the fire insurance on Central's principal asset, the hotel at Burns. Without making any provision for payment of income and excess profits taxes on the profits so realized, the insurance proceeds were distributed to or for the benefit of the stockholders, leaving Central with no assets except the real estate at Burns, against which stood local taxes far in excess of its value.

The petitioners make a number of contentions: (1) that they never became the owners of the Central stock and furthermore that the stock was sold by Jacob to Barnes and the money received was not received as a distribution by Central but in payment by Barnes for the Jacob stock; (2) that by reason of the prior determination that Jacob, not these petitioners, was the owner of the Central stock, and the subsequent settlement of the transferee proceeding brought by Jacob resulting in entry of decision by the Board to the effect that Jacob was liable as transferee of Central, the respondent made an irrevocable election to treat Jacob as the owner of the Central stock and is now estopped from claiming that the petitioners were the owners thereof and transferees of Central; (3) that if it be held that there was no sale of the stock and the amounts received in respect of such stock were received in liquidation, then Jacob, not the petitioners, was the transferee, since the amounts received in liquidation were not and have not been physically turned over by Jacob to them; (4) that respondent has failed to show that petitioners are transferees of a transferee of Central; and (5) that he has also failed to show that either Central or Jacob was insolvent at the time of the transfer of the assets as claimed by respondent.

We find no merit in the claim that the stock involved in these proceedings was sold to Barnes and that the money received in connection therewith was not received in liquidation of Central. The facts are that Jacob, whether acting for himself or for the petitioners, with Conley decided not to continue in the hotel business with Central or otherwise. They could see a most attractive cash profit as the result of the fire and decided to take it out. From the insurance proceeds they paid the debt to Farrell and certain other obligations of Central and then distributed the balance in three parts to the stockholders, leaving Central in an insolvent condition. Barnes had no intention or thought of buying either the Conley or Jacob stock. There was simply a division of the available assets, which in this case happened to be cash. Barnes had some idea that if he might control the corporate shell it might be of some use to him in financing the acquisition of another hotel through the use of a portion or all of the money he had received from Central, but it is perfectly plain that he had no intention that Central should own or conduct any hotel business subsequently acquired by him. It is true that Barnes did thereafter convey certain properties at Hines, Oregon, to Central and that when the hotel at Arlington was acquired title to that property was taken in the name of Central, but at the time of acquisition Conley was instructed to have title transferred to Barnes within the fifteen days following. It seems that at some point Jacob had advised Barnes and Conley that Central and indirectly its stockholders would be saved some tax on the insurance proceeds through the application of section 112(f) of Revenue Act 1936, if Barnes should take title, even though temporary, to subsequently acquired properties in the name of Central, and the petitioners apparently take the view that the above acts of Barnes were prompted by the advice of Jacob and constitute evidence that Barnes purchased the Jacob and Conley stock with a portion of the insurance proceeds in some manner withdrawn by him from the corporation, that Barnes' share of the insurance proceeds was not withdrawn but continued as assets of Central, and that the sums received by Jacob and Conley did not therefore constitute distributions by Central to its stockholders. There is some confusion between Jacob, Barnes, and Conley as to the exact character of the advice originally given by Jacob with respect to the Federal income tax liability of Central and as to the exact time when a letter by Jacob quoting section 112(f), supra, was written and mailed to Barnes. Whatever the facts in that regard, it is apparent that neither Barnes nor Conley understood the advice as Jacob says it was given and, even though we should accept the Jacob version as to the advice actually given, the understanding of Conley and Barnes clearly negatives the interpretation sought to be placed upon Barnes' acts by the petitioners. Barnes took down a pro rata part of the net insurance proceeds just as Conley and Jacob did. On the evidence we think it perfectly clear that the net insurance proceeds were distributed to or for the Central stockholders and no part thereof may be regarded as having been paid for the Jacob or Conley stock by Barnes.

There are numerous claims in the brief of the petitioners that Jacob, and not the petitioners, was the owner of the Central stock and that the respondent has failed to sustain his burden of proving that the petitioners did own the said stock. Even though it be said that the respondent did have the burden of proving that the petitioners were the owners of the Central stock, and regardless of any evidence that respondent may have offered, it appears that Jacob, the petitioners' witness, has carried that burden for him. Obviously, Jacob knew more than any other person concerning the ownership of the Central shares originally issued in his name, and at no place in his testimony did Jacob ever state that he and not the petitioners were the owners of the stock. To the contrary, he testified in response to questions by counsel for the respondent that he at all times regarded the petitioners as the beneficial owners thereof. He testified that about the time the Welcome Hotel was acquired he advised the petitioners that he was going to give each of them a portion of the stock and that his only reason for not having the stock issued in their names when the corporation was organized was his agreement with Farrell to hold control of Central until the indebtedness to Farrell should be paid. The name Central Holding Co. did not impress itself upon the minds of the petitioners but they were familiar with the subject matter of the gift in that they knew it represented the interest Jacob was acquiring in the Welcome Hotel at Burns. These petitioners had confidence in and trusted Jacob and believed that he would look after their interests. They had had no business experience and anything affecting their business affairs was left entirely to Jacob, the husband and father. As soon as sufficient of the insurance proceeds had been collected the indebtedness to Farrell was paid and immediately Jacob, even though it had already been decided to liquidate Central by the distribution of the insurance proceeds, had 99 of the 100 Central shares standing in his name transferred, 25 shares to each of his daughters and 24 shares to his wife. Such action on the part of Jacob is certainly in harmony with the claim of the respondent that the petitioners were the owners of the stock and with the testimony of Jacob that at all times he regarded them as the beneficial owners thereof. Mrs. Jacob, when she received the certificates at the beach accompanied by Jacob's request that they be endorsed and returned to him, recognized the said certificates as representing the shares of stock which Jacob had promised to give to her and the three daughters. If the issuance of the shares in the names of these petitioners was not intended to evidence actual ownership, then Jacob needlessly put himself and petitioners to much unnecessary trouble and his action in having the stock so issued was without purpose and without meaning. Furthermore, the act of the petitioners in endorsing the certificates and returning them to Jacob as requested is not out of harmony with the conclusion that the stock did belong to the petitioners. They looked to and expected Jacob to handle their business transactions. Accordingly, we find no occasion to repudiate for the petitioners the testimony of a witness which they themselves have called. On the record before us we conclude that the petitioners were the owners of 99 shares of Central stock at the time the fire insurance proceeds were distributed, 24 shares belonging to Agnes C. Jacob, and 25 shares each to the daughters.

In the contention that the respondent made an irrevocable election to treat Jacob as the owner of the Central shares and is accordingly estopped to assert transferee liability against these petitioners as the owners of such shares, we likewise find no merit. It is true that the respondent, upon examination of the income tax returns of the petitioners for the year 1937, did conclude that they were not the owners of the Central shares and did not therefore realize gain upon the distribution by Central of the net insurance proceeds. These proceedings, however, are transferee proceedings calling for determination, not of the individual income tax liability of the petitioners, but of their liability as transferees for income tax owing by Central. We find no basis in fact or law for application of the doctrine of estoppel and certainly there can be no proper claim of res judicata. Not only must estoppel be pleaded, but the party invoking estoppel must prove the facts to support it. ; . In the instant case the petitioners have not shown that they have in any way been damaged or misled to their detriment by the respondent and the claim of estoppel falls. To support a finding of res judicata the action in which the finding is sought must involve the same parties, the same facts, the same law. Here the petitioners rely for what they term estoppel by judgment upon the settlement of the transferee proceeding brought by Jacob to determine his liability as transferee for a deficiency in the income tax of Central for the fiscal year 1938 and upon the entry of decision by the Board giving effect to the settlement agreed to by the parties. In the instant case the tax involved is also income tax of Central for 1938, to be exact, the tax reported by Central on its income tax return for the fiscal year 1938, but there the similarity ends. Here the petitioners are Agnes C. Jacob, Shirley May Jacob, Beverly Jean Jacob, and Gwendolyn E. Jacob, not Robert T. Jacob, as in the prior case, and the liability to be determined is their liability, not that of Jacob. , relied on by the petitioners is clearly distinguishable. There the parties, namely, the United States and the Western Maryland Railway Co., as well as the facts and the law, were the same in the current case as in the prior case, while the petitioners here have never before been parties to any litigation involving their liability as transferees of Central for 1938 or any year and their claim, whether it be termed estoppel by judgment or res judicata, is without the necessary factual and legal support.

There is the further contention that the petitioners may not be held liable as transferees of Central because Jacob personally received the money distributed and at no time physically delivered any part of it to them. As to his reason for not delivering the money received to his wife and daughters, Jacob testified that in making the gifts of the shares of stock he did not have in mind gifts of cash or "turning over to them the cash which was realized unexpectedly" and felt that "it would be unwise, as a matter of fact, to turn over to them the cash." It is to be noted, however, that he did not testify that the money did not belong to his wife and daughters or that he did not receive it for them. We have already pointed out that Jacob, on cross-examination, testified that he at all times considered that his wife and daughters were the beneficial owners of the Central stock issued to him, and we have found as a fact that they were the owners of 99 shares of the said stock at the time the fire insurance proceeds were distributed. There is nothing in Jacob's failure physically to turn over the money to the petitioners that is necessarily inconsistent with their ownership of the stock or the money. The testimony of Jacob and the petitioners plainly shows that in all matters business and financial in which these petitioners were interested Jacob acted for them and, not only were they agreeable to his doing this, but they expected it of him. Furthermore, in the signing of the receipt of August 12, 1937, Jacob definitely established his relationship to the money. The money received by Jacob from Central was received for these petitioners and not for himself. The facts here are altogether different from the facts in , where Ross received the assets of the transferor corporation as his own and not for other individuals "considered" as owning said shares of stock. It is our opinion and we conclude that the petitioners are liable as transferees of Central to the extent of their respective shares of the amounts received by Jacob for them. Sec. 311, Revenue Act of 1936. The liability having attached under the statute, any subsequent appropriation by Jacob to his own use of the funds so received by him for the petitioners can not affect their liability herein.

That the distribution of the insurance proceeds by Central left it insolvent has been found as a fact, and the conclusion that the petitioners were transferees of Central within the meaning of the statute eliminates any necessity for considering their claim that the respondent has failed to prove that they were the transferees of a transferee.

Decisions will be entered under Rule 50.