DocketNumber： Docket Nos. 59565, 59566, 59567, 59568, 59569, 59570, 61244
Citation Numbers： 32 T.C. 187, 1959 U.S. Tax Ct. LEXIS 186
Judges： Harron
Filed Date： 4/24/1959
Status： Precedential
Modified Date： 10/19/2024
1959 U.S. Tax Ct. LEXIS 186">*186
A Michigan corporation was dissolved on April 27, 1951. Under Michigan law its corporate existence continued for 3 years, or longer, for the purpose of settling its affairs and concluding a proceeding commenced by it prior to dissolution or within the 3-year winding-up period. Immediately after dissolution, all of the corporation's assets were distributed to its stockholders. At the time of dissolution, the corporation's liability for Federal taxes was in dispute and unsettled. The corporation, through its officers and liquidating directors, respectively, executed successive waivers in advance of expiration of statute of limitations extending the period for assessment of tax deficiencies. Waivers were executed before and after the filing of certificate of dissolution. The last waivers, which extended the period of limitation to June 30, 1954, were executed before the end of the 3-year winding-up period.
32 T.C. 187">*187 The Commissioner determined, and there is due and owing, the following deficiencies in taxes of Adwood Corporation, plus statutory interest: 32 T.C. 187">*188
| Fiscal year ended | ||
| May 31 -- | Tax | Deficiencies |
| 1946 | Income | $ 6,033.81 |
| 1947 | Income | 20,110.47 |
| 1948 | Income | 20,109.04 |
| 1949 | Income | 7,999.25 |
| 1950 | Income | 1,727.16 |
| 55,979.73 | ||
| 1945 | Declared value excess-profits | 1,752.60 |
| 1946 | Declared value excess-profits | 2,027.93 |
| 3,780.53 | ||
| 1945 | Excess profits | 34,927.76 |
| 1946 | Excess profits | 29,080.10 |
| 64,007.86 | ||
| Total | 123,768.12 |
The Commissioner determined that each petitioner 1959 U.S. Tax Ct. LEXIS 186">*190 The question presented is whether the statute of limitations bars the assessment and collection of any liability due from each petitioner as a transferee for unpaid deficiencies of Adwood Corporation for the years 1946-1950, inclusive.
FINDINGS OF FACT.
Adwood Corporation (hereinafter called Adwood) was organized under the laws of Michigan. It kept its books and filed its returns on the basis of a fiscal year ended May 31. It filed its income and excess profits tax returns for the fiscal years ended in 1945-1950, inclusive, with the collector of internal revenue for the district of Michigan in Detroit.
The petitioner Ethel Daniels is the widow of Max Daniels, who died on August 16, 1952, a former stockholder of Adwood. Max Daniels was a transferee of assets of Adwood. Ethel Daniels is a transferee of assets of the estate of Max Daniels. All of the other petitioners are transferees of Adwood.
On March 27, 1951, the stockholders of Adwood duly adopted a resolution to dissolve the corporation and distribute all of the corporation's assets to the stockholders, except for those stockholders who exercised an option to receive cash.
On March 27, 1951, a certificate of dissolution of1959 U.S. Tax Ct. LEXIS 186">*191 Adwood was 32 T.C. 187">*189 executed by the holders of more than three-fourths of the stock of Adwood; the certificate was filed on April 27, 1951, pursuant to the provisions of section 73 of the Michigan Corporation Law, as amended, with the Michigan Corporation and Securities Commission.
On March 27, 1951, Adwood filed a notice of adoption of a resolution of dissolution and liquidation (Form 966) with the Commissioner pursuant to the provisions of section 148(d) of the 1939 Code.
The directors of Adwood at the time the certificate of dissolution was filed were Hal D. Cantin, Irving Bilton, Max Daniels, Samuel J. Baskin, and Harry Gold. Adwood's officers at that time were: President, Irving Bilton; vice president, Harry Gold; secretary-treasurer, Hal D. Cantin; assistant secretary and assistant treasurer, Max Daniels; assistant secretary and assistant treasurer, Florence A. Moran.
At the time the certificate of dissolution was filed, 104,281 shares of common stock of Adwood were outstanding, of which 101,475 shares were held by Bilton, Baskin, Cantin, Daniels, Gold, 1959 U.S. Tax Ct. LEXIS 186">*192 stockholders, as follows:Name Amount of shares Irving Bilton 14,782 Samuel J. Baskin 13,107 Hal D. Cantin 35,433 Max Daniels 5,000 Ann C. Field 8,988 Harry Gold 24,165 William P. Andre 247 Harry Gold 398 Anthony J. Andre, Jr 247 The Union & League of Roumanian Societies of America, Inc 930 Hilda Lanoff 489 Eugene R. Andre 247 H. Margaret Cooley 248 Total 104,281
Prior to its dissolution, the business of Adwood was the leasing of a hotel known as Hotel Detroiter, located at 2560 Woodward Avenue, Detroit, Wayne County, Michigan. At the time of dissolution, the principal property owned by Adwood was the parcel of land where the hotel was located, the building on the land, and the fixtures, equipment, and furniture in the hotel. The property was subject to various encumbrances.
Pursuant to a plan of liquidation, Adwood made transfers to the following 6 stockholders1959 U.S. Tax Ct. LEXIS 186">*193 (now petitioners in these proceedings) on April 28, 1951, by quitclaim deed, of undivided fractional interests in the property known as the Hotel Detroiter, including the personal property located therein, in proportion to their ownership of stock of the corporation. Adwood also made distributions to its other 7 stockholders, which are described hereinafter, representing 2,806/104,281 interest in Adwood's assets. The quitclaim deed was signed for Adwood by Bilton, president, and Moran, assistant secretary. The 6 32 T.C. 187">*190 stockholders received distribution of 101,475/104,281 fractional, undivided interests in the hotel property, as follows:
| Stockholder | Undivided interests |
| Bilton | 14,782/104,281 |
| Baskin | 13,107/104,281 |
| Cantin | 35,433/104,281 |
| Daniels | 5,000/104,281 |
| Field | 8,988/104,281 |
| Gold | 24,165/104,281 |
| 101,475/104,281 |
The distribution of the undivided interests in the hotel property of Adwood, listed above, constituted a distribution to the above-named stockholders of property having the values set forth below, on the basis of which the transferee liability of each of the petitioners has been established. The undivided interests received by the stockholders involved1959 U.S. Tax Ct. LEXIS 186">*194 here had the following values on April 28, 1951:
| Values of assets and | ||
| Docket No. | Stockholder | property received |
| 59565 | Ann C. Field | $ 53,770.11 |
| 59566 | Harry Gold | 129,790.31 |
| 59567 | Hal D. Cantin | 202,844.98 |
| 59568 | Max Daniels | 29,351.85 |
| 59569 | Samuel J. Baskin | 76,944.92 |
| 59570 | Irving Bilton | 84,430.27 |
| 577,132.44 |
The above distributions by Adwood to the stockholders were made without consideration and left Adwood insolvent and without assets with which to pay any part of its liability for Federal income, declared value excess-profits, and excess profits taxes for the years 1946 through 1950, plus statutory interest, in the amounts which are set forth hereinafter.
After the death of Max Daniels, all of his interest in the assets of Adwood (having a value of $ 29,351.85) was transferred to his wife, Ethel Daniels, without consideration, leaving his estate without any assets.
After April 28, 1951, all of the stockholders of Adwood transferred their respective undivided interests in the properties, which had been distributed by Adwood, to the Bankers Equitable Trust Company (now the Detroit Trust Company) in trust, declaring themselves to be the beneficiaries of the trust1959 U.S. Tax Ct. LEXIS 186">*195 in the same proportions as their ownership of the property.
The tax returns of Adwood for the taxable years ended May 31, 1945, through May 31, 1950, were duly examined and audited by respondent's agents, and on December 1, 1950, and March 2, 1951, 30-day letters were sent to Adwood, together with the agents' reports of examination 32 T.C. 187">*191 of the returns, proposing the deficiencies in taxes which here are involved. The 30-day letters were received by Adwood; and they stated, among other things: "If you do not agree to the proposed adjustment, you may file a protest within 30 days stating the grounds for your exceptions."
Successive protests were executed by Adwood signed "Adwood Corporation by Irving Bilton" (a petitioner herein), and were filed on December 13, 1950, and March 15, 1951, with the district director of internal revenue at Detroit, in which the transferor took exception to the depreciation adjustment on the Hotel Detroiter proposed by respondent which resulted in the tax liabilities here involved.
Irving Bilton and Adwood, the transferor, represented to respondent in the protests that respondent's proposed adjustment to the basis for depreciation of the Hotel Detroiter1959 U.S. Tax Ct. LEXIS 186">*196 for years immediately preceding the years at issue (i.e., 1942-1944, inclusive) was presently before the Court of Appeals for the Sixth Circuit. The transferor had appealed from a decision of the Tax Court of the United States,
Adwood, in the protests signed by Bilton, requested that the transferor's tax liability case for the taxable years here involved "be held in abeyance until such time as the decision of the Court of Appeals for the Sixth Circuit was rendered"; and it was further represented and stated that the transferor was willing to sign any required waivers of the statutory limitation for the taxable years and liabilities here involved.
On December 23, 1952, the Court of Appeals for the Sixth Circuit affirmed the Tax Court's decision, which was for the respondent, in
Waivers of Restrictions on Assessments and Collection of Deficiency in Tax and Acceptance of Overassessment (Form 870) for the taxable years here involved and in the amounts set forth above were duly executed by Adwood and filed on October 23, 1953, with the then director of internal revenue at Detroit, Michigan. The Form 870 was signed "Adwood Corporation by Irving Bilton -- President," and consented to the assessment and collection of the deficiencies here at issue.
There are due from and owing by Adwood Corporation the deficiencies in income tax, declared value excess-profits tax, and excess profits tax for the taxable years ended May 31, 1945, through May 31, 1950, first set forth above, plus statutory interest. Interest has been 32 T.C. 187">*192 assessed in the total amount of $ 32,434.51. The deficiencies in taxes total $ 123,768.12. On December 11, 1953, the deficiencies in the amounts set forth above were assessed excepting the deficiency in excess profits tax for the 1945 fiscal year and the declared value excess-profits tax for the 1946 fiscal year. There is an overassessment of Adwood's1959 U.S. Tax Ct. LEXIS 186">*198 income tax for its 1945 fiscal year in the amount of $ 5,092.55.
The district director of internal revenue at Detroit gave notice to the transferor, Adwood, of the assessment of the assessed tax liabilities, and he demanded payment thereof from the transferor on December 11, 1953, and on January 20, 1954, but payment thereof was neglected or refused.
On March 30, 1955, notices of Federal tax liens under internal revenue laws covering the assessed tax liability of the transferor were filed with the register of deeds for Wayne County, Michigan, at 3:40 p.m., and with the clerk of the United States District Court, Detroit, Michigan, at 3:54 p.m.
On October 26, 1951, Bankers Equitable Trust Company consolidated with the Detroit Trust Company to become the Detroit Trust Company, which became the successor trustee under the trusts to which the interests in the properties of the Hotel Detroiter were transferred in 1951. On March 18, 1955, the Detroit Trust Company resigned as trustee under the trust agreements, and on March 30, 1955, quitclaimed the Hotel Detroiter to Max Dresdner, as successor trustee.
By quitclaim deed dated March 30, 1955, recorded March 31, 1955, in the Wayne County, 1959 U.S. Tax Ct. LEXIS 186">*199 Michigan, records, Max Dresdner conveyed the Hotel Detroiter to Kenneth White, who by deed dated March 30, 1955, recorded April 1, 1955, in the Wayne County, Michigan, records, conveyed it to Walter J. Guler.
The Bankers Equitable Trust Company, the Detroit Trust Company, Max Dresdner, and Kenneth White were not at any time mortgagees, pledgees, purchasers, or judgment creditors with respect to the Hotel Detroiter, within the meaning of section 3672 of the 1939 Code and section 6323 of the 1954 Code. The Bankers Equitable Trust Company and the Detroit Trust Company, under the trust agreements referred to above, held only a bare legal title to the Hotel Detroiter without any control of the management or the income from the property, or the disposition thereof.
The deed of the Hotel Detroiter dated March 30, 1955, recorded April 1, 1955, referred to above, from Kenneth White to Walter J. Guler was pursuant to an agreement whereby the Hotel Detroiter was traded or exchanged for the Belden Stratford Hotel of Chicago, Illinois.
By deed dated March 31, 1955, recorded in the Wayne County, Michigan, records, April 1, 1955, Walter J. Guler and his wife conveyed 32 T.C. 187">*193 the Hotel Detroiter1959 U.S. Tax Ct. LEXIS 186">*200 to Edward Mooney, Roman Catholic Archbishop of the Archdiocese of Detroit, Michigan.
The Lawyers Title Insurance Company issued a title insurance policy effective March 31, 1955, in the amount of $ 1,475,000 to Edward Mooney, Roman Catholic Archbishop, covering the Hotel Detroiter. No exceptions were noted in the policy as to the notices of Federal tax liens referred to above, covering the assessed tax liabilities here involved. Exceptions as to the tax liens were not noted because if so noted title would not have been acceptable to the purchaser, Edward Mooney, Roman Catholic Archbishop.
The Title Insurance Company, Walter J. Guler, the petitioners herein, and their attorney, Frank Donovan, had knowledge of the tax liabilities herein and of the notices of liens covering the assessed liabilities here involved prior to issuance of the title insurance policy.
To induce the Lawyers Title Insurance Company to issue the title insurance policy on the Hotel Detroiter without exceptions as to the tax claim and liens of the Government, a letter dated March 31, 1955, signed "2560 Woodward Building, an Illinois Partnership, by Hal D. Cantin, General Partner" and confirmed by Harry Gold and1959 U.S. Tax Ct. LEXIS 186">*201 Max Dresdner, was sent to the Title Insurance Company indemnifying it against any liability which might be incurred by reason of issuance of the policy attributable to the tax liabilities here involved. A total of $ 111,550.79 was deposited with the Title Insurance Company as security.
The $ 111,550.79 was released and returned pursuant to a letter dated May 4, 1955, to the Title Insurance Company, signed by Max Dresdner, Hal D. Cantin, and Harry Gold whereby those persons, jointly and severally, unconditionally indemnified the Title Insurance Company under the policy by reason of the tax liabilities here involved; and pursuant to a letter to the Title Insurance Company dated May 6, 1955, signed by petitioners' counsel, Frank Donovan, whereby he indemnified the Title Insurance Company to the extent of any amounts realized through the enforcement of a mortgage note and mortgage trust deed on the Belden Stratford Hotel dated March 31, 1955.
By letter of May 6, 1955, Frank Donovan, petitioners' attorney, deposited with the Lawyers Title Insurance Company in connection with his indemnity agreement of the same date, a mortgage note dated March 31, 1955, by Max Dresdner, as trustee, in1959 U.S. Tax Ct. LEXIS 186">*202 the amount of $ 250,000 payable to bearer, and a third mortgage trust deed dated March 31, 1955, upon the Belden Stratford Hotel was given to secure such mortgage note.
The March 31, 1955, mortgage note and trust deed on the Belden Stratford Hotel was executed pursuant to an airmail, special delivery letter dated March 26, 1955, to Meyer Field, Irving Bilton, Samuel 32 T.C. 187">*194 Baskin, and Leonard Sewer, and signed by Harry Gold, Hal D. Cantin, and Max Dresdner. The purpose of the $ 250,000 mortgage was to constitute a security and source of payment to discharge any tax liabilities to the extent that each tax liability could be successfully asserted against the Hotel Detroiter or its owners.
The purpose of the March 31, 1955, mortgage note and trust deed on the Belden Stratford Hotel was the same as the $ 250,000 mortgage on the Hotel Detroiter dated March 27, 1951, executed by Adwood to Meyer Field, as trustee. No cash, money, or checks were paid to or received by Adwood or any other person, and there was no consideration for the mortgage dated March 27, 1951, on the Hotel Detroiter executed by Adwood. There was no consideration for execution of the mortgage note and trust deed 1959 U.S. Tax Ct. LEXIS 186">*203 dated March 31, 1955, on the Belden Stratford Hotel.
2560 Woodward Avenue is the address of the Hotel Detroiter located in Detroit, Michigan. The business address of the transferor, Adwood Corporation, was 188 West Randolph Street, Suite 1311, Chicago, Illinois. Meyer Field, Max Daniels, Irving Bilton, and Hal D. Cantin had offices at such address. The business address of the 2560 Woodward Building was the same as Adwood's business address. The petitioners herein, majority stockholders of the transferor, also owned the majority interest in 2560 Woodward Building allegedly formed on April 1, 1951, as a successor to Adwood, and referred to by petitioners as an "Illinois partnership." Their ownership of "units" in the 2560 Woodward Building corresponded to their ownership of shares of stock in Adwood, the transferor. For each share of stock of the transferor, they received one unit in the 2560 Woodward Building. The total number of outstanding units in the 2560 Woodward Building from April 1, 1951, to March 31, 1955, was 104,281, which was the total number of shares of outstanding stock of Adwood as of April 27, 1951, the date its certificate of dissolution was filed.
On November1959 U.S. Tax Ct. LEXIS 186">*204 1, 1950, Adwood leased the Hotel Detroiter to the Hotel Detroiter of Detroit, Inc., lessee, for a term of 8 years with a minimum rental of $ 120,000 per year. The Hotel Detroiter of Detroit, Inc., was a corporation composed of George Denison and Hal D. Cantin (one of the petitioners) and was used for the purpose of operating the Hotel Detroiter.
The petitioners herein continued the business of the transferor, Adwood, at least until March 31, 1952, after they had caused a certificate of dissolution of the transferor to be filed on April 27, 1951. There is no evidence of the assignment of the transferor's lease of the Hotel Detroiter but petitioners continued to rent the Hotel Detroiter to the Hotel Detroiter of Detroit, Inc., and collected the rents from such lease from April 1, 1951, before the transferor's certificate of 32 T.C. 187">*195 dissolution was filed, to and including March 31, 1955, the date the Hotel Detroiter was conveyed by Walter J. Guler to Edward Mooney, Roman Catholic Archbishop.
Meetings of the board of directors of Adwood, the transferor, were held May 11, 1951, and August 31, 1951, after the transferor's certificate of dissolution was caused to be filed by petitioners1959 U.S. Tax Ct. LEXIS 186">*205 on April 27, 1951.
Successive consents (Treasury Department Form 872) listed below were executed by the respondent and Adwood, the transferor, extending the time for assessment of the transferor's income, declared value excess-profits, and excess profits taxes for the taxable years here involved as set forth above. All of the agreements bore the seal of the transferor.
| Taxable year ended May 31, 1945 | |||
| Time for | |||
| Date executed | assessment | Signed by | Position |
| extended to | |||
| Jan. 7, 1948 | June 30, 1949 | James K. Watkins | Treasurer. |
| Mar. 14, 1949 | June 30, 1950 | Meyer Field | President. |
| May 23, 1950 | June 30, 1951 | Hal D. Cantin | Secretary. |
| G. Denison | President. | ||
| Feb. 14, 1951 | June 30, 1952 | Irving Bilton | President. |
| Dec. 10, 1951 | June 30, 1953 | Hal D. Cantin | Secretary-Treasurer. |
| Nov. 5, 1952 | June 30, 1954 | Irving Bilton | President. |
| Florence A. Moran | Assistant Secretary. | ||
| Taxable year ended May 31, 1946 | |||
| Mar. 14, 1949 | June 30, 1950 | Meyer Field | President. |
| May 23, 1950 | June 30, 1951 | Hal D. Cantin | Secretary. |
| G. Denison | President. | ||
| Feb. 14, 1951 | June 30, 1952 | Irving Bilton | President. |
| Dec. 10, 1951 | June 30, 1953 | Hal D. Cantin | Secretary-Treasurer. |
| Nov. 5, 1952 | June 30, 1954 | Irving Bilton | President. |
| Florence A. Moran | Assistant Secretary. | ||
| Taxable year ended May 31, 1947 | |||
| May 23, 1950 | June 30, 1951 | Hal D. Cantin | Secretary. |
| G. Denison | President. | ||
| Feb. 14, 1951 | June 30, 1952 | Irving Bilton | President. |
| Dec. 10, 1951 | June 30, 1953 | Hal D. Cantin | Secretary-Treasurer. |
| Nov. 5, 1952 | June 30, 1954 | Irving Bilton | President. |
| Florence A. Moran | Assistant Secretary. | ||
| Taxable year ended May 31, 1948 | |||
| Feb. 14, 1951 | June 30, 1952 | Irving Bilton | President. |
| Dec. 10, 1951 | June 30, 1953 | Hal D. Cantin | Secretary-Treasurer. |
| Nov. 5, 1952 | June 30, 1954 | Irving Bilton | President. |
| Florence A. Moran | Assistant Secretary. | ||
| Taxable year ended May 31, 1949 | |||
| Dec. 10, 1951 | June 30, 1953 | Hal D. Cantin | Secretary-Treasurer. |
| Nov. 5, 1952 | June 30, 1954 | Irving Bilton | President. |
| Florence A. Moran | Assistant Secretary. | ||
| Taxable year ended May 31, 1950 | |||
| Nov. 5, 1952 | June 30, 1954 | Irving Bilton | President. |
| Florence A. Moran | Assistant Secretary. | ||
1959 U.S. Tax Ct. LEXIS 186">*206 32 T.C. 187">*196 The consents, Treasury Department Form 872, were executed and delivered by authorized agents of, and with the authority of, the board of directors of the Adwood Corporation.
An offer in compromise on Treasury Form 656 on behalf of Adwood, the transferor, seeking to compromise the assessed tax liability involved herein on the basis of inability to pay, was filed with the district director of internal revenue at Detroit, Michigan, on January 13, 1954. Contained in the offer in compromise is the following:
In making this offer, and as a part consideration thereof, * * * the proponent hereby expressly waives:
* * * *
The benefit of any statute of limitations applicable to the assessment and/or collection of the liability sought to be compromised, and agrees to the suspension of the running of the statutory period of limitations on assessment and/or collection for the period during which this offer is pending, or the period during which any installment remains unpaid, and for 1 year thereafter.
A check in the amount of $ 50,295.29 was submitted with such offer which sum is still held by the respondent.
An amended offer in compromise on Treasury Form 656-C on behalf of Adwood1959 U.S. Tax Ct. LEXIS 186">*207 Corporation, signed Adwood Corporation by Hal D. Cantin, was filed with the district director of internal revenue at Detroit, Michigan, on August 19, 1954. The offer in compromise and the amended offer in compromise are still pending.
On June 23, 1955, statutory notices of deficiency were mailed to all the petitioners herein as transferees except Ethel Daniels (Docket No. 61244) to whom a statutory notice of deficiency as a transferee of a transferee was mailed on December 5, 1955. Each of these notices of deficiency asserts transferee liability for the tax liability of Adwood, the transferor, for the taxable years and in the amounts set forth above, plus statutory interest as provided by law.
The successive consents listed above were valid and effective to extend the period for assessment of the tax liability here involved against Adwood to June 30, 1954.
The issuance to Adwood of 30-day letters by the respondent on December 1, 1950, and March 2, 1951, and the filing of protests by Adwood on December 13, 1950, and March 15, 1951, objecting to the deficiencies proposed in the 30-day letters, constituted the commencement of a proceeding by or against Adwood prior to its dissolution. 1959 U.S. Tax Ct. LEXIS 186">*208 The filing by Adwood of an offer in compromise on January 13, 1954, constituted the commencement of a proceeding by Adwood within the meaning of section 21.75 of Michigan Statutes Annotated, and Adwood's corporate existence was extended beyond the 3-year winding-up 32 T.C. 187">*197 period. The consents executed on November 5, 1952, were effective to extend the period of limitation to June 30, 1954.
The statutory notices of transferee liability mailed on June 23, 1955, and December 5, 1955, respectively, were timely.
The stipulated facts are found as stipulated. The stipulations and attached exhibits are incorporated herein by this reference.
OPINION.
The issue to be decided is whether the statutory notices of transferee liability for tax deficiencies of Adwood Corporation were timely so that assessments of transferee liability are not barred by the statute of limitations. Petitioners concede that they are the transferees of the corporation and that they would be liable for the assessments if they are not barred by the statute of limitations. The value of the property of Adwood received by each petitioner and the amount of each transferee's liability has been stipulated.
A series of waivers were executed by authorized officers of Adwood for each of the years here involved and each was executed before the expiration of the prior extended period. For the taxable year ended May 31, 1945, six waivers were executed, the first on January 7, 1948, and the last on November 5, 1952. For the taxable year ended May 31, 1946, five waivers were executed, the first on March 14, 1949, and the last on November 5, 1952. For the taxable1959 U.S. Tax Ct. LEXIS 186">*212 year ended May 31, 1947, four waivers were executed, the first on May 23, 1950, and the last on November 5, 1952. For the taxable year ended May 31, 1948, three waivers were executed, the first on February 14, 1951, and the last on November 5, 1952. For the taxable year ended May 31, 1949, two waivers were executed, on December 10, 1951, and on November 5, 1952. For the taxable year ended May 31, 1950, one waiver was executed on November 5, 1952. The last waiver executed for each of the years 1945-1950, inclusive, contained consent to extension of the period for assessment to June 30, 1954.
On April 27, 1951, the Adwood Corporation filed a certificate of dissolution with the Michigan Corporation and Securities Commission. On October 23, 1953, the Adwood Corporation executed Forms 32 T.C. 187">*199 870, Waivers of Restrictions on Assessments and Collection of Deficiency in Tax and Acceptance of Overassessment, for the taxable years involved and in the amounts here assessed. The district director of internal revenue at Detroit gave notice to the Adwood Corporation of the assessments of the assessed tax liabilities and he demanded payment thereof from Adwood on December 11, 1953, and on1959 U.S. Tax Ct. LEXIS 186">*213 January 20, 1954. An offer in compromise on Treasury Form 656 on behalf of Adwood Corporation was filed with the district director on January 13, 1954, and an amended offer in compromise was filed August 19, 1954. On March 30, 1955, notices of Federal tax liens covering assessed tax liability of the transferor, Adwood Corporation, were filed with the register of deeds for Wayne County, Michigan, and with the clerk of the United States District Court in Detroit. On June 23, 1955, statutory notices of transferee liability for deficiencies of the transferor were mailed to all the petitioners, as transferees, except Ethel Daniels to whom a statutory notice of transferee liability for deficiencies, as a transferee of a transferee, was mailed on December 5, 1955.
The petitioners contend first that a transferor may not, by executing a consent, extend the period of limitation during which taxes may be assessed and collected from transferees; that the Code does not authorize the Commissioner to procure the consent of one taxpayer for the purpose of extending the period of limitation as to other taxpayers; and that the consents executed by Adwood had no effect as far as the transferees, 1959 U.S. Tax Ct. LEXIS 186">*214 the petitioners, are concerned. If the petitioners' theory is correct, since the parties have stipulated that Adwood Corporation's returns were timely filed, the period of limitation against the petitioners, as transferees, would have expired no later than 4 years after the last return of Adwood was due. For the fiscal year ended May 31, 1950, the petitioners contend that the period of limitation relating to the transferees would have expired at least by February 15, 1955.
The petitioners contend, further, that if the waivers executed by Adwood were valid so that they extended the period of limitation, the extension was terminated when the1959 U.S. Tax Ct. LEXIS 186">*216 assessments were made against Adwood Corporation pursuant to the waivers of restrictions on assessments and collections which were executed on October 23, 1953. Assessments were made as of December 11, 1953, and January 20, 1954. Petitioners argue that the period within which the transferees could be assessed runs 1 year from those dates. Petitioners' theory is that waivers (consents) are only for the purpose of allowing the Commissioner additional time within which to assess taxes; the extensions of the period of limitation were terminated when assessments were actually made against Adwood; and the waivers became null and void as soon as the respondent made an assessment. Hence, the petitioners contend, the latest period within which to assess the transferees expired January 20, 1955. The respondent determined deficiencies against the petitioners, as transferees, on June 23, 1955, and on December 5, 1955. Petitioners argue that the determinations of the transferee liabilities were barred.
Petitioners have not cited any authority for these contentions, and we have found none. Petitioners cite
The chief contention of petitioners is now reached. It relates to the continuance of Adwood Corporation as a body corporate, under Michigan law, for special purposes, and to the effectiveness of the waivers executed by an authorized1959 U.S. Tax Ct. LEXIS 186">*218 agent of the board of directors on November 5, 1952, to extend the period of limitation for assessment to June 30, 1954, which date, the petitioners contend, was beyond and after Adwood Corporation ceased to exist under Michigan law.
32 T.C. 187">*201 Although the repetition of various dates is tedious, it is necessary to show clearly what the narrow question before us is under the provisions of
On the other hand, it is the theory of the petitioners that under the provisions of section 75 of the General Corporation Law of Michigan, Adwood ceased to be a corporate entity at the expiration of a 3-year period following its dissolution. Petitioners argue that the date of the expiration of the 3-year period was not later than April 27, 1954; that the last series of waivers (consents) executed on November 5, 1952, could not legally extend the period of limitation for assessment of Adwood's liability for taxes beyond April 27, 1954; that such period ended by virtue of the operation of the Michigan statute on (or before) April 27, 1954; that, accordingly, the period of limitation for assessment of the liabilities of the initial transferees ended on (or before) April 27, 1955; and, finally, that the statutory notices of transferee liability mailed on June 23, 1955, were untimely.
Whether or not the statutory notices of liability of the initial transferees were timely depends, therefore, upon whether the last series of waivers executed1959 U.S. Tax Ct. LEXIS 186">*220 on November 5, 1952, which purported to extend the period of limitation for assessment of tax deficiencies of Adwood to June 30, 1954, were legally effective to extend such period to that date. The respondent does not dispute the point that the length of the period of time that a corporation continues to exist as a body corporate depends upon the law of the State where the corporation was created,
The ultimate question to be decided relates, therefore, to whether, for the purposes of
Before considering these questions, clarification of a date is necessary. The required number of Adwood's stockholders, three-fourths, adopted a resolution on March 27, 1951, to dissolve the corporation pursuant to section 73 of the corporation laws of Michigan, which allows a solvent corporation to dissolve by the vote of at least three-fourths of each class of outstanding stock. Section 73, as amended, provides that within 30 days after any such dissolution a certificate signed1959 U.S. Tax Ct. LEXIS 186">*222 by the holders of at least three-fourths of all of the outstanding stock shall be filed with the Michigan Corporation and Securities Commission and with the county clerk, showing that all the debts and liabilities of the corporation have been paid or provision made for the payment thereof. Section 72 provides that upon filing such certificate, the corporation shall be deemed to be dissolved, provided that nothing contained in the Act shall be construed as taking away or prejudicing any right of creditors to pursue any remedy at law given by any law of the State within such period as may be prescribed in the statute of limitations. It has been stipulated that Adwood's stockholders filed the certificate of dissolution on April 27, 1951, with the proper commission. A the trial of these cases, counsel for petitioners seemed to agree that the date of dissolution was April 27, 1951. The parties have proceeded under the understanding that such was the date. However, on brief, petitioners asserted that the corporation was dissolved on April 4, 1951, evidently referring to a stamp on the certificate of dissolution (a copy of which is in evidence) which refers to April 4, 1951, as the 1959 U.S. Tax Ct. LEXIS 186">*223 date on which dissolution was effective. It is immaterial whether the actual date of dissolution is either one of these dates, but since the petitioners have not seen fit to establish with certainty the precise date, and since the certificate was filed on April 27, 32 T.C. 187">*203 we shall refer hereinafter to April 27, 1951, as the date of dissolution from which the statutory 3-year period, under section 75, began.
Section 21.75, Mich. Stat. Ann., provides as follows:
21.75 Dissolved or defunct corporation, continuation for special purposes. Section 75. All corporations whose charters shall have expired by * * * dissolution * * * shall nevertheless continue to be bodies corporate for the further term of three (3) years from such expiration, dissolution * * * for the purpose of prosecuting and defending suits for or against them and of enabling them gradually to settle and close their affairs and to dispose of and convey their property and to divide their assets; but not for the purpose of continuing the business for which such corporations were organized: Provided, That with respect to any action, suit or proceeding begun or commenced by or against the corporation prior to such * * * 1959 U.S. Tax Ct. LEXIS 186">*224 dissolution * * * and with respect to any action, suit or proceeding begun or commenced by the corporation within three (3) years after the date of such * * * dissolution * * * such corporation shall only for the purpose of such actions, suits or proceedings so begun or commenced be continued a body corporate beyond said three (3) year period and until any judgments, orders or decrees therein shall be fully executed: And provided further, That whenever the number of directors of such a corporation * * * shall at or before the beginning of or during said term of three (3) years by death, resignation or otherwise, be less than the full number of directors required or authorized by statute or the by-laws of such corporation, then and in that event a majority of the remaining, surviving directors or the sole surviving director, shall from time to time, during said period of three (3) years, have all the powers to act for such corporation under this section which are conferred upon or which exist in the board of directors of such corporation before the expiration of its charter or during said term of three (3) years.
Under section 74(1) of the General Corporation Law of Michigan (sec. 1959 U.S. Tax Ct. LEXIS 186">*225 21.74(1), Mich. Stat. Ann.), upon the voluntary, or de facto, dissolution of a corporation, the directors then in office and the survivors of them are the trustees of the properties of the corporation in behalf of the creditors and shareholders, respectively, for the purpose of distributing the properties under law to the corporation's creditors and shareholders. For such purpose, a majority of the directors acting as trustees shall have full authority to compromise, adjust, and settle any claims by or against the corporation or its properties, to sell and assign the properties, and to do such other things as may be necessary to permit them to execute their trust. Under section 69, the directors of a corporation in dissolution are given full power to settle, compromise, and pay all claims against the corporation.
In general, under a statute continuing a dissolved corporation for a stated period, such as 3 years, for the purpose of winding up the corporation's affairs, the corporation remains a body corporate for certain purposes; the debts due from and owing to the corporation are not extinguished by dissolution, as at common law; and the directors and their agents have the implied1959 U.S. Tax Ct. LEXIS 186">*226 power to do and perform the necessary 32 T.C. 187">*204 acts to carry out the purpose of gradually winding up the affairs of the corporation. Under the General Corporation Law of Michigan the above applies to the status of a dissolved corporation, in general.
The adjustment and settlement of the liability of Adwood for taxes for its fiscal years 1945 through 1950 were among the things necessary to the closing up of its business.
1959 U.S. Tax Ct. LEXIS 186">*229 Under the circumstances reviewed above, the settlement of Adwood's total liability for Federal taxes was indeed one of the chief matters remaining to be taken care of during Adwood's extended corporate life under the provisions of sections 69, 74(1), and 75, as amended, of the General Corporation Law of Michigan.
The initial steps leading up to the assessments of taxes against Adwood were taken prior to its dissolution, and thereafter the matter was continuously pursued by the respondent during the 3-year period of extended life of Adwood. The period of limitation for the assessment and collection of taxes owed by Adwood at no time expired. See
After April 27, 1954, the further steps taken by Adwood and the respondent in respect to Adwood's liability for taxes were as follows: On August 19, 1954, Adwood filed with the district director an amended offer in compromise, which is still pending. On March 30, 1955, the respondent filed notices of Federal tax liens against Adwood with the Wayne County register of deeds and the clerk for the United States District Court in Detroit.
As has been noted above, section 75 of the Michigan corporation statute provides that a dissolved corporation shall continue to be a body corporate beyond the 3-year period of extended life with respect to any "proceeding" commenced by or against the corporation prior1959 U.S. Tax Ct. LEXIS 186">*232 to its dissolution, and with respect to any "proceeding" commenced by the corporation within the 3-year period after the date of such dissolution until any orders, or decrees, or judgments therein shall be fully executed. The Michigan statute is remedial,
Under such construction of section 75, we think that the waivers of the period of limitation for the assessment and collection of taxes owed by Adwood, the issuance of the 30-day letters, the filing of protests, the filing of waivers of restrictions on assessment and collection of deficiencies, the assessment of the deficiencies, the demands for payment of deficiencies, the filing by Adwood of an offer in compromise and the submission of a check along with the offer, all constituted an integrated administrative proceeding which was a "proceeding" within the meaning of that term in section 75, which was commenced 32 T.C. 187">*207 both by and against Adwood prior to its dissolution, or at least within the 3-year period of extended life. Certainly all of these steps were analogous to a proceeding within the intendment of section 75 of the Michigan statute. See
Although it is our opinion that the petitioners' contention relating1959 U.S. Tax Ct. LEXIS 186">*235 to the status of Adwood during its winding-up period under the provisions of section 75 is without any merit, it is also concluded, under the following authorities, that the directors of Adwood had the power to waive the statute of limitations in pursuance of the adjustment of the liabilities of Adwood for deficiencies in taxes.
Since it is concluded that the statutory notices of transferee liability for the deficiencies of Adwood were timely, it is unnecessary to consider the alternative contention of the respondent that the petitioners are estopped to deny the validity of the successive waivers, and of the waivers of November 5, 1952, and to deny their transferee liability. See, however,
32 T.C. 187">*208 Although the determinations of the respondent are sustained, Rule 50 computations are required under stipulations of the parties relating to the respective values of the interests in the assets of Adwood which each petitioner received.
1. The following proceedings are consolidated herewith: Docket No. 59566, Harry Gold, Transferee; Docket No. 59567, Hal D. Cantin, Transferee; Docket No. 59568, Max Daniels, Deceased, Ethel Daniels, Sole Heir at Law; Docket No. 59569, Samuel J. Baskin, Transferee; Docket No. 59570, Irving Bilton, Transferee; Docket No. 61244, Ethel Daniels, Transferee. All of the petitioners are transferees of Adwood Corporation, except Ethel Daniels who is a transferee of assets of the Estate of Max Daniels, Transferee of Adwood Corporation.↩
2. Respondent determined that Ethel Daniels, Docket Nos. 59568 and 61244, is liable, respectively, as the sole heir at law of Max Daniels, deceased, one of the original transferees of Adwood Corporation, and as a transferee of property of the Estate of Max Daniels, transferee of Adwood Corporation.↩
3. The parties refer only to 24,165 shares owned by Gold for purposes of the issue although he owned an additional 398 shares.↩
4.
(b) Period of Limitation. -- The period of limitation for assessment of any such liability of a transferee or fiduciary shall be as follows: (1) In the case of the liability of an initial transferee of the property of the taxpayer, -- within one year after the expiration of the period of limitation for assessment against the taxpayer; (2) In the case of the liability of a transferee of a transferee of the property of the taxpayer, -- within one year after the expiration of the period of limitation for assessment against the preceding transferee, but only if within three years after the expiration of the period of limitation for assessment against the taxpayer; --↩
5.
Except as provided in
(a) General Rule. -- The amount of income taxes imposed by this chapter shall be assessed within three years after the return was filed, and no proceeding in court without assessment for the collection of such taxes shall be begun after the expiration of such period.↩
6.
(b) Waiver. -- Where before the expiration of the time prescribed in
7. Section 53(a) of the 1939 Code provides that returns of fiscal year taxpayers are due the 15th day of the third month following the close of the fiscal year. The Commissioner is authorized to grant an extension of up to 6 months.↩
8. The directors of Adwood before, at the time of, and after its dissolution were the following: Irving Bilton, Hal D. Cantin, Harry Gold, Samuel Baskin, and Max Daniels.↩
Commissioner of Internal Revenue v. Godfrey , 50 F.2d 79 ( 1931 )
Bruun v. Cook , 280 Mich. 484 ( 1937 )
Stott v. Stott Realty Co. , 288 Mich. 35 ( 1939 )
John J. Gamalski Hardware, Inc. v. Wayne County Sheriff , 298 Mich. 662 ( 1941 )
Bahen & Wright v. Commissioner of Internal Revenue , 176 F.2d 538 ( 1949 )
Continental Oil Co. v. United States , 14 F. Supp. 533 ( 1936 )
Commissioner of Internal Revenue v. Angier Corporation , 50 F.2d 887 ( 1931 )
Adwood Corp. v. Commissioner of Internal Revenue , 200 F.2d 552 ( 1952 )
United States v. Kemp , 12 F.2d 7 ( 1926 )
United States v. City of New York , 134 F. Supp. 374 ( 1955 )
Lucas v. Hunt , 45 F.2d 781 ( 1930 )
Virgil D. Dardi, Individually and as of the Estate of ... , 252 F.2d 670 ( 1958 )
american-standard-watch-co-inc-patitioner-v-commissioner-of-internal , 229 F.2d 672 ( 1956 )
Oklahoma Natural Gas Co. v. Oklahoma , 47 S. Ct. 391 ( 1927 )