Moorhead v. Commissioner

WILLIAM A. MOORHEAD, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

GEORGE M. WRIGHT, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

GADSDEN SHAND, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

I. M. MAULDIN, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

J. P. MATTHEWS, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

Moorhead v. Commissioner

Docket Nos. 25853, 25854, 26238, 26239, 26250.

United States Board of Tax Appeals

22 B.T.A. 858; 1931 BTA LEXIS 2050;

March 20, 1931, Promulgated

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1. Held, that petitioners' contention in regard to section 280 of the Revenue Act of 1926 is without merit.

2. Held, that the Commissioner has not sustained the burden of proof placed upon him by the Revenue Act of 1928, to show that these petitioners are liable as transferees, within the meaning of section 280 of the Revenue Act of 1926, of property of the Banna Manufacturing Company.

J. C. Peacock, Esq., for the petitioners.

J. A. Lyons, Esq., J. E. Mather, Esq., and J. O. Rhyne, Esq., for the respondent.

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LOVE

These proceedings are for the redetermination of certain liabilities proposed against each of these petitioners, as transferees of the Banna Manufacturing Company, for the year 1918 in the amount of $21,424.94. The material facts, the issues, and the amount assessed being the same in each case, the cases were consolidated for hearing by agreement of counsel.

At the hearing, Oliver P. Loyal, administrator of the estate of I. M. Mauldin, deceased, was substituted for the decedent petitioner; and amended answers were filed to the petitions of Gadsden Shand, I. M. Mauldin, and J. P. Matthews.

Petitioners assert the errors following:

(a) The Commissioner erred in not holding that the $28,876.06 expended in 1918 for Hopedale Automatic attachments was deductible by Banna Manufacturing Company under either section 234(a)(1) or 234(a)(8) of the Revenue Act of 1918;

(b) The Commissioner erred in holding that petitioners are transferees of the assets of Banna Manufacturing Company or that any assessment whatever could be proposed or made against any of them on account of the alleged tax liability of that company;

(c) The Commissioner erred in proposing any assessment in excess of $21,424.94 (the original assessments having been reduced to that amount by subsequent credits);

(d) The Commissioner erred in proposing an assessment of any penalties or interest (the assessment against Banna Manufacturing Company not having been made until after the dissolution of that Company);

(e) The Commissioner erred in proposing the assessment against each petitioner of the full amount of the alleged liability of Banna Manufacturing Company (each being only one of several alleged transferees against each of whom the Commissioner has similarly proposed assessment of the full amount of such alleged liability); and

(f) The Commissioner erred in proposing any action whatever under section 280 of the Revenue Act of 1926 (that section being unconstitutional).

Thus are raised three main issues, as follows:

1. The constitutionality of section 280 of the Revenue Act of 1926;

2. Whether the final order of redetermination entered by this Board in , is res adjudicata in this proceeding, as to the deficiency in taxes due from the Banna Manufacturing Company for 1918; and

3. Whether these petitioners are liable as transferees for the payment of such, or any, deficiency.

FINDINGS OF FACT.

Petitioner I. M. Mauldin, to the time of his death, was a resident, and the remaining four individual petitioners are residents, of South Carolina.

The several notices of deficiency were each mailed to petitioners on February 10, 1927.

The assessments proposed against these petitioners are income and excess-profits taxes which have been heretofore assessed against the Banna Manufacturing Company, Goldville, S.C., for 1918, and which the Commissioner alleges may now be assessed against petitioners as transferees of that corporation, under section 280 of the Revenue Act of 1926.

Banna Manufacturing Company was a corporation organized in 1907 under the laws of South Carolina. On September 24, 1924, it filed with the Secretary of State of South Carolina a certificate of dissolution, as provided by the laws of that State. From the time of its organization until April 30, 1924, taxpayer was continuously engaged in cotton manufacturing and in the operation of a cotton mill.

A short time prior to January 2, 1920, petitioners entered into a written agreement with one S. H. McGhee, as follows:

STATE OF SOUTH CAROLINA.

MEMORANDUM OF AGREEMENT made by and between S. H. McGhee, hereinafter designated as Buyer, and J. P. Matthews, Ivy M. Mauldin, W. A. Moorehead, Gadsden E. Shand and George M. Wright, hereinafter designated as Sellers,

WITNESSETH:

1. That the Sellers agree to sell and the Buyer agrees to buy on January 2, 1920, all of the stock of Banna Manufacturing Company at a price to be arrived at on the basis of thirty four dollars ($34) per spindle for each and every spindle of the said Banna Manufacturing Company amounting to fourteen thousand two hundred and twenty-four (14,224) spindles and in addition to buy and pay for all quick assets as provided in paragraph 3.

2. Previous to January 2, 1920, Sellers agree that they will distribute all the quick assets of Banna Manufacturing Company except such as are necessary for the operation of the plant, which Buyer does not buy.

3. The Buyer agrees to pay for all the quick assets which he buys at invoice price, and to buy and pay for stock in process, the price of which shall be arrived at by a representative of the Buyer and a representative of the Sellers, and if these two cannot agree it is agreed that a third party shall be called in whose decision shall be final and binding on both parties.

4. Sellers agree to protect the Buyer in respect to federal income taxes up to and including the year 1919, and if the federal government shall assess any additional or further taxes for any year previous to and including the year 1919, the Sellers agree to pay the same, provided however that this shall apply to income tax laws now enacted.

5. It is agreed that all of the stock of Banna Manufacturing Company shall be transferred to a holding company, and that such holding company shall be organized with a capital stock of five hundred thousand ($500,000) dollars, of which amount two hundred and fifty thousand ($250,000) dollars shall be common stock and two hundred and fifty thousand ($250,000) dollars shall be preferred stock. The two classes of stock shall have the rights and preferences hereinafter set forth, which rights and preferences shall constitute a part of this agreement. The Buyer shall pay all expenses of the trustee and any disbursements it may make either as depository of the stock as herein provided, or as trustee under the agreement.

6. It is agreed that until the terms of purchase shall be carried out in full and the preferred stock going to Sellers shall have been redeemed that the Sellers shall designate one Director, and the Buyer agrees that such person designated shall be elected a Director of Banna Manufacturing Company, and that at each election of Directors some person designated by the Sellers shall be elected a Director.

7. The Buyer agrees to pay twenty-five thousand ($25,000) dollars at the time of the execution of this contract, and in case he shall fail to carry out the terms of this agreement it is agreed that said twenty-five thousand ($25,000) dollars shall become the property absolutely of the Sellers, but in case the purchase is carried out the twenty-five thousand ($25,000) dollars shall be applied on the purchase price.

8. The Palmetto Trust Company shall be the depository of the said stock and trustee under the agreement, and the Buyer agrees to deposit with said trust company all the capital stock of the Banna Manufacturing Company, and such trustee shall hold the said stock until all the agreements and terms of purchase shall have been carried out in full, after which it shall deliver the stock to the parties entitled thereto.

9. The preferred stock shall have the following rights, preferences, conditions and limitations:

The holders of the preferred stock shall be entitled to receive when and as declared by the Board of Directors, from the surplus or net profits arising from the business of the corporation, cumulative dividends at the rate of, but never exceeding, eight per centum (8%) per annum from and after January 1, 1920, payable semi-annually on June 30, and December 31, in each and every fiscal year, in preference and priority to the declaration or payment of any dividends upon the common stock.

If for any dividend period a dividend at the rate of eight per centum (8%) per annum upon the par value of the preferred stock shall not be declared and paid, the deficiency shall be a charge upon the surplus and net profits arising from the business of the corporation and shall be payable, but without interest, before any dividend shall be declared or paid in respect to common stock.

In the event of any liquidation or dissolution or winding up (whether voluntary or involuntary) of the corporation, the holders of the preferred stock shall be entitled to be paid one hundred ($100) dollars per share and the unpaid dividends accrued thereon out of the capital or funds of the corporation or the proceeds thereof, before any amount shall be paid therefrom to the holders of the common stock.

The holders of preferred stock shall not be entitled to any other or further share than as above specified, in surplus, or net profits, or in the capital or funds of the corporation, either prior to or in the event of liquidation and final winding up of the company.

Subject to the prior rights of holders of preferred stock, as above specified and limited, the holders of the common stock shall be entitled to all the assets and funds of the corporation and to all profits realized therefrom, and to all rights accruing to stockholders in said company.

The preferred stock, or any part or any particular shares thereof, shall be subject to the right of the corporation, at its option, to redeem, purchase and acquire the same upon the first day of January or the first day of July in any year after the first of January, A.D., 1920, at par, together with any dividends accrued and unpaid thereon. In case the corporation shall so elect to redeem, purchase or acquire any of the said stock and shall notify the registered holder thereof or any part thereof of its election so to do, the right of said holder of said stock or of any assignee thereof to receive dividends upon said stock subsequent to the dates specified in said notice for such redemption, purchase or acquisition, shall cease and determine.

The holders of preferred stock shall have no voting power in respect to any of said stock, except as herein otherwise expressly provided, nor shall they be entitled to any notice of meetings of stockholders, nor shall their consent, except as otherwise provided by law, be requisite for any act of the corporation or of the stockholders; Provided, however, That if in or for any fiscal year the corporation shall fail to declare and pay or set apart for payments dividends upon said preferred stock outstanding aggregating for such fiscal year eight (8%) per centum upon such stock, then the holders of such preferred stock shall be entitled to vote in any meeting held after the expiration of such fiscal year and while the corporation shall be in default with respect to the declaration or payment of such dividends and until all dividends accrued and unpaid upon such preferred stock shall have been declared paid or set apart for payment, and while such dividends are so in default the holders of common stock shall have no right to vote at any stockholders meeting. In the event that the debt of the Banna Manufacturing Company or its successor or successors shall exceed its quick assets then the common stock of the company shall have no vote whatever. Upon the happening of a default in dividends, or upon the debt, the holders of the preferred stock shall have the right to call a stockholders meeting, elect Directors from among the preferred stockholders, call a meeting of the stockholders of Banna Manufacturing Company, and elect directors of Banna Manufacturing Company from among the preferred stockholders of this company.

The preferred stock shall be redeemed at par and accumulated dividends five years from January 1st, 1920.

10. For every share of preferred stock not delivered on January 2nd, 1920, the buyers shall have the right to reserve $200 per share until such stock is delivered.

11. Sellers shall swap $248,300 of stock of Banna Manufacturing Company for $248,300 of the preferred stock of the holding company and in addition sellers shall take $1,700 of the preferred stock at par and the difference over $250,000 shall be paid in cash.

J. P. MATTHEWS,

MARIA MATTHEWS,

By J. P. MATTHEWS, Trustee.

GEO. M. WRIGHT, WM. A. MOORHEAD,

By GEO. M. WRIGHT,

Attorney in fact.

G. E. SHAND, I. M. MAULDIN,

IVY MAULDIN,

By I. M. MAULDIN, Trustee.

CAROLINA REALTY & TRUST CO.,

By I. M. MAULDIN, Prest.

S. H. MCGHEE.

Witness:

WM. ELLIOTT.

At the time of the making of the above agreement and the sale of the stock of the Banna Manufacturing Company on January 2, 1920, it had outstanding capital stock of a par value of $248,300, divided into three classes, as follows:

Common	$100,000
Preferred	51,600
Guaranteed	96,700
	248,300

Petitioners here held $193,100 par value of this stock, divided among them as follows:

	Shares common	Shares preferred	Shares guaranteed
George M. Wright	225	116	122
J. P. Matthews		114	123
Gadsden Shand	225	114	89
I. M. Mauldin		90	103
William A. Moorhead	100	40	30
J. P. Matthews, trustee	225
I. M. Mauldin, trustee	215
Total	990	474	467

or slightly less than 77.8 per cent of the entire capital stock.

In accordance with paragraph 5 of the foregoing agreement, the corporation of Banna Mills was created on January 2, 1920, under the laws of South Carolina, with a capital of $500,000, divided into 5,000 shares of the par value of $100 each. Banna Mills, referred to in the agreement as the holding company, issued its stock as $250,000 preferred, and $250,000 common shares, all of the stock of the Banna Manufacturing Company to be transferred, according to the agreement, to the Banna Mills and held in trust for the benefit of its stockholders by the Palmetto Trust Company as depository and trustee until all the agreements and terms of purchase were carried out in full.

In December, 1919, the directors of the Banna Manufacturing Company declared a special dividend of 75 per cent to its common stockholders, and on January 2, 1920, they declared a special dividend of 60 per cent to such common stockholders of record as of December 31, 1919. Such dividends were declared in cash, but the corporation at that time did not have a sufficient amount of cash on hand with which to pay them, so the value of its quick assets was ascertained and the company borrowed thereon the cash necessary to pay the special dividends declared as above, and such dividends were not declared nor paid out of its fixed or capital assets. These quick assets, to the extent of $135,000 or $150,000, were thus converted into cash by the company prior to the consummation of the agreement with McGhee, and such quick assets were distributed, in the form of cash dividends as above, among the stockholders of the Banna Manufacturing Company, according to their stockholdings. In addition to the foregoing distribution, each common stockholder of the Banna Manufacturing Company received preferred stock of the Banna Mills on the basis, approximately, of 2 1/2 shares of Banna Mills preferred, for each share of Banna Manufacturing Company common. Under paragraph 5 of the agreement set forth above, Banna Mills was organized for the purpose of holding, through the Palmetto Trust Company, as trustee under paragraph 8 of the agreement, all the stock of the Banna Manufacturing Company. The holders of the preferred stock of Banna Mills, among whom were the petitioners here, retained the right, under certain conditions provided for in paragraph 9 of the agreement, to take control of Banna Manufacturing Company by voting their preferred stock in Banna Mills, to which stock that right was reserved.

On May 1, 1924, the Banna Manufacturing Company sold its entire assets and business to an independent corporation, a sale made in good faith, for a consideration of something more than $450,000, of which not less than $245,000 was received in cash, and $200,000 was received in three-year 6 per cent purchase money notes, or one note, to the order of the Banna Manufacturing Company, the fair market value of such notes being at no time less than their par value. The liabilities of the latter corporation (exclusive of additional Federal taxes asserted for 1918 and 1924) did not exceed $23,700, which liabilities were promptly paid out of the cash proceeds of the sale, and the remainder of the cash was deposited on order of the board of directors with the American Bank & Trust Company, of Greenville, which institution had apparently been substituted for the Palmetto Trust Company, the trustee named in paragraph 8 of the agreement, but which does not appear, from the evidence, to have been actively engaged in any of the subsequent transactions. The first deposit with the American Bank & Trust Company was made on April 8, 1924, in the amount of $21,500. This was followed on May 9, 1924, by deposits of $193,500 and $30,000, with the result that at the close of business on that day there was a credit balance in cash of $245,000. On the next day, May 10, there was a debit of $244,667.50, and on June 9 a debit of $332.50 temporarily closed the account.

On or about May 16, 1924, the preferred stock of Banna Mills (the holding company) which had been distributed to each common stockholder of the Banna Manufacturing Company on the basis of 2 1/2 shares of Banna Mills preferred for each share of Banna Manufacturing common, was redeemed at 95.

On June 20, 1924, meetings of directors of Banna Manufacturing Company and of Banna Mills were held and identical resolutions adopted that the respective corporations go into liquidation, wind up their affairs, and dissolve.

On July 26, 1924, the stockholders of each corporation met and approved the action of its directors, and the following actions were taken:

The stockholders of the Banna Manufacturing Company provided, among other things:

That the corporation do go into liquidation, and wind up its affairs, and dissolve in accordance with the recommendation of the Board of Directors, and the Directors of the said corporation are hereby appointed Trustees of the same, with all of the power and authority mentioned and described in Section 4282 of the Code of Laws of South Carolina, Volume 3, 1922. That American Bank & Trust Company of Greenville, S.C., be and it hereby is constituted and appointed the liquidating agent of the said Board of Trustees, and the purchase money notes which the corporation now holds shall be transferred and assigned to the said liquidating agent for the benefit of the corporation, its creditors and stockholders, and all other assets of the corporation shall be turned over to the said liquidating agent as the same are reduced to cash. That after the payment of the debts and obligations of the said corporation, the said liquidating agent shall hold the assets for the benefit of the stockholders of Banna Mills, who are the beneficial stockholders of this corporation.

The stockholders of Banna Mills provided, among other things, that the corporation go into liquidation, and the directors of the corporation were appointed its trustees, as in the case of the Banna Manufacturing Company, and:

That the American Bank and Trust Company of Greenville, S.C., be and it hereby is constituted and appointed liquidating agent of the said Board of Directors, and as such liquidating agent shall hold the assets of the corporation, collect the same as they become due, pay the debts and obligations of the corporation, and distribute the surplus funds among the stockholders in accordance with their respective rights thereto. After the payment of the debts of this corporation, and after the debts of Banna Manufacturing Co. have been paid, the said liquidating agent shall hold all the balance of the estate for the benefit of the said stockholders, or, if the Board of Trustees desire to do so, it may have the said liquidating agent issue certificates to the stockholders for their respective holdings in the corporation, taking up and cancelling the certificates of stock.

Thus, on September 24, 1924, the Banna Manufacturing Company and the holding company, Banna Mills, were dissolved, and their respective charters were duly surrendered. The directors of the Banna Manufacturing Company at the time of its dissolution who thus became its trustees were Kenneth Baker, G. P. Neel, B. E. Geer, William A. Moorhead, C. D. W. Halsey, and George M. Wright. Moorhead and Wright are among the petitioners in this case.

On the following day, September 25, 1924, the account in the American Bank & Trust Company headed "American Bank & Trust Co., Trustee for Banna Mfg. Co.," which account had been closed, temporarily, on June 9, as we have found above, was reopened with a credit (marked "int." in pencil) of $5,456.74, and thereafter the account is carried, with numerous entries for relatively small amounts, in the same name and on the same page of the depositors' ledger of the bank until November 19, 1925, on which day (the first page of the original leaf having been filled with entries) the balance of $678.86 was carried forward to the reverse of the leaf, but the account on that following page appears in the name of "American Bank & Trust Co. for Banna Mills."

On February 10, 1927, the cash balance to the credit of this account was $299.66, and the trustees of Banna Manufacturing Company held, in the custody of the American Bank & Trust Company as liquidating agent for such trustees, a purchase money note, or notes, for $200,000 and accrued interest, due on or about May 1, next following. This note was duly collected, and the proceeds, $206,000, were credited on May 3, 1927, to the account then captioned "American Bank & Trust Co. for Banna Mills." At the close of that business day, the cash balance to the credit of this account was $206,299.66.

On April 12, 1927, prior to the maturity and payment of the purchase money note or notes, the American Bank & Trust Company was taken over by the South Carolina National Bank, but this identical leaf from the depositors' ledger was continued in use by the national bank until May 9, 1927, when a balance of $158,590.66 was carried forward to a new sheet headed "American Bank & Trust Co., for Banna Mills, Liquidating." On or about June 1, 1927, the South Carolina National Bank surrendered its Federal charter and became the South Carolina Savings Bank, a State institution, but the ledger sheet of the American Bank & Trust Company was used by the savings bank, as it had been by the national bank, until July 17, 1928, at which time a final debit of $16.55 left a credit balance of $2.22, after which no further entries appear.

On February 10, 1927, an identical deficiency notice was mailed to each of these petitioners in the amount of $22,950.04, plus any accrued penalty and interest, as an alleged transferee within the meaning of section 280 of the Revenue Act of 1926, of the assets of the Banna Manufacturing Company, for additional income and profits taxes in that amount which had been assessed against the Banna Manufacturing Company in conformity with the final determination of this Board, entered in accordance with its decision in . Respondent concedes that prior to February 10, 1927, the date of the deficiency notices, the assessment in the above amount had been reduced by credits aggregating $1,525.10 to $21,424.94, and that the assessment now outstanding against the Banna Manufacturing Company, and unpaid, for which petitioners are alleged to be liable is $21,424.94.

OPINION.

LOVE: Referring to petitioners' contentions in regard to section 280 of the Revenue Act of 1926, we need say no more than that we hold them to be without merit. We disposed of precisely the same question in , since which time we have followed that decision in many cases, and we follow it here.

There remains to be considered respondent's contention that petitioners are liable as transferees of property of the Banna Manufacturing Company, in respect of the above tax, including interest, additional amounts, and additions to the tax provided by law.

The pertinent part of the Revenue Act of 1926 follows:

CLAIMS AGAINST TRANSFERRED ASSETS.

SEC. 280. (a) The amounts of the following liabilities shall, except as hereinafter in this section provided, be assessed, collected, and paid in the same manner and subject to the same provisions and limitations as in the case of a deficiency in tax imposed by this title (including the provisions in case of delinquency in payment after notice and demand, the provisions authorizing distraint and proceedings in court for collection, and provisions prohibiting claims and suits for refunds):

(1) The liability, at law or in equity, of a transferee of property of a taxpayer, in respect of the tax (including interest, additional amounts, and additions to the tax provided by law) imposed upon the taxpayer by this title or by any prior income, excess-profits, or war-profits tax Act.

(2) The liability of a fiduciary under section 3467 of the Revised Statutes in respect of the payment of any such tax from the estate of the taxpayer. Any such liability may be either as to the amount of tax shown on the return or as to any deficiency in tax.

* * *

(f) As used in this section, the term "transferee" includes heir, legatee, devisee, and distributee.

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 question immediately before us, then, is whether the Commissioner has sustained the burden of showing that these petitioners are liable as transferees of property of the Banna Manufacturing Company.

The facts material to this consideration, briefly recapitulated, are that on January 2, 1920, the stockholders of the Banna Manufacturing Company sold, under paragraph 1 of the agreement contained in our findings, all their stock to one S. H. McGhee for $483,616, and on the same date Banna Mills was organized as a holding company with an authorized capital of $250,000 preferred stock and $250,000 common. The stock of the manufacturing company was transferred to the holding company and deposited with a trust company as trustee for all those in interest, until all the agreements and terms had been carried out in full. The stockholders of the manufacturing company, under paragraph 11 of the agreement "swapped" all their stock for $248,300 of the preferred stock of the holding company, taking in addition $1,700 more of the preferred stock of the holding company at par, thus leaving $233,616 to be paid in cash before the transaction was completed.

On May 1, 1924, the Banna Manufacturing Company sold in good faith all of its assets for a consideration of which not less than $245,000 was received in cash, and $200,000 was received in valid three-year, 6 per cent purchase-money notes. From the cash thus received, the amount due in cash from McGhee, the buyer of the Banna Manufacturing Company's stock, was paid, and the preferred stock of the holding company (Banna Mills) was redeemed at 95 on or about May 16, 1924.

On September 24, 1924, the Banna Manufacturing Company and the holding company, Banna Mills, were duly dissolved, and their respective charters surrendered.

On the crucial date of February 10, 1927, when the deficiency notices were mailed to each of these petitioners, the trustees of Banna Manufacturing Company had in the custody of the American Bank & Trust Company as liquidating agent for such trustees, a cash credit balance of $299.66, and a purchase-money note, or notes, for $200,000 and accrued interest. This amount was duly collected, together with interest for 6 months of $6,000, on or about May 1, 1927, and on May 3 the account of the "American Bank & Trust Co. for Banna Mills" on the books of the South Carolina National Bank, the successor of the American Bank & Trust Company, was credited with $206,000, and at the close of that business day the cash balance to the credit of that account was $206,299.66.

In support of the burden of proof which rests upon him, the respondent's only contentions appear to be that these petitioners, all of whom had been stockholders of the Banna Manufacturing Company, had (in paragraph 4 of the above agreement) assumed and agreed to pay the tax liability involved herein, and that dissolution of a corporation absolves a creditor from the duty of exhausting remedies against the corporation before proceeding to collect his debt out of transferred assets.

We dismiss respondent's first contention. It requires no more than the briefest consideration to determine that respondent has here no interest whatever in a guaranty from these petitioners as sellers of the stock of the Banna Manufacturing Company running to the buyer thereof. Whatever might be the case under other circumstances, respondent is not here proceeding against these petitioners as guarantors to the buyer in a sale of stock of the Banna Manufacturing Company, which is all that paragraph 4 of the agreement provides, but as transferees of the property of the Banna Manufacturing Company, of which corporation they had ceased to be stockholders more than seven years before the deficiency notices were issued.

In , we held that section 280 of the Act of 1926 provides only an additional means of procedure against a transferee, and that the Commissioner may resort to such a proceeding only when there remain no available remedies against the transferor, and we have been sustained in so holding by the United States Circuit Court of Appeals for the Second Circuit in a per curiam decision handed down on January 5, 1931, in .

In the case before us the Commissioner contends that dissolution of a corporation absolves a creditor from the duty of exhausting remedies against the transferor corporation, citing , but we are of opinion that that case leads to no such conclusion here. In the Updike case the Courts said:

The trust fund doctrine has been held not to apply to solvent going concerns; but dissolution, in this respect, has the same effect as insolvency. [Citing cases.] Its property then becomes a trust fund for the benefit of creditors and those sustaining a like position under the law; and, if that property has been distributed to stockholders, it remains impressed with the same trust. (Citing cases.) (Italics supplied.)

Further along in its discussion of the facts, the Court continued:

They [the stockholders] have not merely diminished the corporate estate, as by dividends declared. They have absorbed the corpus. They have converted their stock certificates into the concrete property which those certificates represented, and have thereby rendered the corporation itself unable to meet its obligations. (Italics supplied.)

We are of opinion that the Updike decision cited by the Commissioner, and from which we have quoted, goes no further than to lay down the rule that where property of a dissolved corporation has been distributed to its stockholders without the payment, or the sufficient provision for the payment, of all of its debts, obligations, or liabilities, and the stockholders have thus absorbed the corpus of the corporation and have thereby rendered the corporation itself, or its legal wraith, unable to meet such debts, obligations, or liabilities, then, and to that extent, the property so distributed remains impressed with a trust for the benefit of creditors and those sustaining a like position under the law. That is not the situation here.

On July 26, 1924, the stockholders of the Banna Manufacturing Company, at a meeting regularly and duly called for that purpose, provided:

That the corporation do go into liquidation, and wind up its affairs, and dissolve in accorance with the recommendation of the Board of Directors, and the Directors of the said corporation are hereby appointed Trustees of the same, with all of the power and authority mentioned and described in Section 4282 of the Code of Laws of South Carolina, Volume 3, 1922 * * *.

That section of the civil code of South Carolina prescribes (p. 1275):

Upon the dissolution in any manner of any corporation, the directors shall be trustees thereof, with full power to settle the affairs, collect the outstanding debts, sell and convey the property and divide the moneys and other property among the stockholders after paying its debts, as far as such moneys and property shall enable them; * * *

The following section provides:

The directors constituted trustees as aforesaid shall have authority to sue for and recover the aforesaid debts and property by the name of the corporation, and shall be suable by the same name or in their own names or individual capacities for the debts owing by such corporation, and shall be jointly and severally responsible for such debts to the amount of the moneys and property of the corporation which shall come to their hands or possession as such trustees.

For more than two years prior to February 10, 1927, and for some time thereafter, the trustees of the Banna Manufacturing Company, who had formerly been its directors, then dissolved, had in their possession in the custody of the American Bank & Trust Company as liquidating agent for such trustees, property consisting of varying amounts of cash, and the purchase money note, or notes, for $200,000, and accrued interest, while the only liability of the Banna Manufacturing Company was these unpaid taxes amounting to $21,424.94. Cf. .

That the Commissioner had not pursued this property thus in the hands of the trustees of the Banna Manufacturing Company is tacitly established in his contention before us that the dissolution of the corporation absolved him from what in his brief he admits to be a creditor's duty of exhausting remedies against the corporation before proceeding to collect his debt out of transferred assets. It does not appear that the Commissioner has taken any other action whatever.

For these reasons we are of opinion that the Commissioner has not sustained the burden of proof placed upon him by the Revenue Act of 1928, to show that these petitioners are liable as transferees, within the meaning of section 280 of the Revenue Act of 1926, of the property of the Banna Manufacturing Company.

Judgment of no deficiency will be entered.