DocketNumber： Docket No. 79501
Judges： Fisher
Filed Date： 4/26/1961
Status： Precedential
Modified Date： 11/14/2024
Petitioner, the sole stockholder of a company, in 1953 transferred all of its assets to a new sole proprietorship which continued to carry on the business of the corporation. Although petitioner, through his new business, discharged many of the corporate debts, a tax liability of the company for the year 1949 remains unsatisfied.
*157 Respondent determined a fiduciary liability against petitioner under
Petitioner, having failed to contest the propriety of the determination of the tax liability against Victory, either in pleading or on brief, has apparently conceded the corporate liability. The significant question for our determination is whether petitioner is liable as a fiduciary of the company for its tax liability, any transferee liability being barred by limitations.
FINDINGS OF FACT.
Some of the facts are stipulated and are found accordingly.
Petitioner, Leon G. Grieb, prior to 1943 had been engaged in business as a general contractor in an individual capacity in Milwaukee, Wisconsin. In 1943 he established Victory Builders, Inc., a Wisconsin corporation (hereinafter referred to as the company) through which he carried on his business. At all times pertinent hereto, petitioner owned all of the outstanding stock of the company, with the exception of 2 qualifying shares, and was its president and one of its directors. Although all of petitioner's *167 business was handled through the corporate structure, most of the contracts were drawn up designating petitioner personally without mentioning the company. Petitioner did not make an effort to convey to the people with whom he transacted business that it was a corporation they were dealing with as distinguished from him personally.
For the year 1949, the company filed its income tax return with the then collector of internal revenue, Milwaukee, Wisconsin.
On January 2, 1953, respondent determined against the company additional income taxes for the year 1949, additions to tax, and interest in the amount of $ 1,477.32. During the same month the *158 company's assets were transferred to a new sole proprietorship formed by petitioner.
On the morning of January 29, 1953, there was an actual cash balance in the company checking account in the amount of $ 6,918.41. The source of this amount can be traced as follows:
| Balance as of Jan. 29, 1953 | $ 627.27 | |
| Jan. 21, 1953 | Advance on "Grieb-Hacker job" | 2,239.54 |
| Jan. 27, 1953 | Advance on "Grieb-Hacker job | 61.47 |
| Payment on "Freeman job" | 534.39 | |
| Jan. 28, 1953 | Advance on "Boettcher job" | 3,455.74 |
| Balance as of Jan. 29, 1953 | 6,918.41 | |
A total of $ 531.07 of company checks *168 cleared the bank that day leaving a balance of $ 6,387.34. Although there were still many company checks outstanding, petitioner that day withdrew the amount of $ 6,377.34 (leaving a balance in the company account of $ 10) and deposited that sum, with another check for $ 255, in a new checking account with the same bank entitled "Leon G. Grieb, Builder." Petitioner arranged with the bank to have outstanding checks of the company charged to this new account as they were presented to the bank for payment.
During the period from January 29, 1953, to February 24, 1953, the following checks issued by the company for business expenses were charged to the account of Leon G. Grieb, Builder.
| Motor Vehicle Dept | $ 25.00 |
| Joseph M. Roblee & Co | 54.45 |
| Lorin Frefenthaler | 28.47 |
| Audrey J. Grieb | 6.50 |
| Builders Hardware, Inc | 228.41 |
| Railroad Express | 24.23 |
| Cash | 25.00 |
| Cash | 10.00 |
| Wisconsin Electric Power Co. | .55 |
| Total | 402.61 |
During this same period other charges were made against the Leon G. Grieb account totaling $ 145.23 in payment of miscellaneous bills of the company such as telephone, electricity, attorney fees, office rent due for January, etc. There is no evidence as to whether these checks were written by the company *169 or by petitioner personally.
Although the company was left without assets, it was never formally dissolved.
At the time of the transfer of assets to petitioner the company was in the process of building two homes. They are referred to as the *159 "Boettcher job" and the "Hacker-Grieb job." Petitioner continued to work on the jobs in process and to carry on the business of general contractor which had been previously conducted by the company. In connection with these jobs in process, during January and February of 1953, petitioner contracted with subcontractors and materialmen for work on them. The procedure of payment to them was as follows. As the subcontractor presented his bill for payment, petitioner would approach the owner for a certificate for withdrawal on a lending institution equivalent to the demand of the subcontractor. After receiving this certificate, petitioner would call in the subcontractor involved, obtain a waiver of lien covering the specific amount of work up to that time, give him a check for such amount, and then proceed to the lending institution to withdraw the advance. Prior to January 29, 1953, all such advances were credited to the company's advance billing *170 account.
During the period from January 29, 1953, to February 24, 1953, petitioner issued checks totaling $ 4,003.78 against the Leon G. Grieb, Builder, account in payment to the contractors and materialmen who had performed services and/or furnished materials in connection with the Boettcher job. Included in the amount of $ 4,003.78 was the sum of $ 1,170 paid to the Wisconsin Furnace Company by check dated February 5, 1953. The invoice for that amount represented work completed on the Boettcher job on or before November 11, 1952, on which date the invoice was issued. The payment to the furnace company was delayed pending receipt of an advance from the owner (Boettcher) on January 28, 1953.
The balance sheet of the company as of December 31, 1952, is as follows:
| Assets | ||
| Cash | $ 1,227.73 | |
| Note receivable | 1,200.00 | |
| Supplies on hand | 1,410.39 | |
| Prepaid taxes | 20.03 | |
| Fixed assets (net) | 1,524.62 | |
| Contracts receivable | 698.35 | |
| Stock subscription | 4,800.00 | |
| Jobs in process | Due from officers | 13,371.22 |
| $ 59,193.69 | ||
| Liabilities | ||
| Accounts payable | $ 4,257.62 | |
| Bonds, notes, mortgage | ||
| payable | 2,300.00 | |
| Payroll taxes | 359.19 | |
| Due officers | 3,000.00 | |
| Advance billing | ||
| State and Federal income | ||
| tax | 128.58 | |
| Capital stock | 6,000.00 | |
| Earned surplus | 8,481.98 | |
| $ 59,193.69 | ||
*160 Petitioner stated the company's assets and liabilities as of January 31, 1953, for the Internal Revenue Service as follows:
| Assets | |
| Unissued capital stock | $ 4,800.00 |
| Due from officers | 9,681.98 |
| Total | $ 14,481.98 |
| Liabilities | |
| Capital stock | $ 6,000.00 |
| Surplus | 8,481.98 |
| Total | $ 14,481.98 |
The assets were listed as not possessing any fair market value or forced sale value.
On January 31, 1953, petitioner owned real estate free of encumbrances in the amount of $ 30,000.
In the year 1955 payments totaling $ 618.54 were made by petitioner toward the tax determined against the company leaving a balance due in the amount of $ 800.
On December 30, 1958, a notice of deficiency was mailed to petitioner charging him, as fiduciary of the company, with personal liability for the $ 800 balance owing by the company.
OPINION.
Pursuant to the provisions of
Transferee liability covers the situation where one takes complete title to property from an insolvent debtor without full, fair, and adequate consideration to the prejudice of the rights of the creditors of the transferor.
A fiduciary, on the other hand, is defined in the Code as "a guardian, trustee, executor, administrator, receiver, conservator, or any person acting in any fiduciary capacity for any person."
The basis of fiduciary liability in the Code rests solely upon the provisions of sections 3466 and 3467 of the Revised Statutes. It is not a liability attaching to one receiving funds without fair consideration which is based upon any equitable principles of constructive *162 trust, but rather a liability to enforce the prior claim of the Government to the fund *176 he so received over general creditors of the debtor.
Fiduciary liability has been summarized in
The latter
The payments made by the fiduciary to creditors not having priority over the Government are not avoided or set aside.
A case illustrating the fine distinction between a fiduciary and a transferee within the meaning of the Code is
In another case,
From the above analysis it is clear that transferee and fiduciary liability attaches to persons holding different interests in property for different purposes, and imposes different standards of liability. While *163 we have seen that one person may hold the same property in both capacities at different times, and one person may hold different properties in both capacities at the same time, from the very nature of the two capacities, one person may not hold the same property in both capacities at the same time.
It has long been established that stockholders receiving the assets of a corporation upon liquidation are liable to the Government for unpaid taxes of the corporation under the broader transferee liability section of the Code, since it is presumed that they received them absolutely for their own benefit.
In the case of
Where a corporation dissolves and turns over its capital assets to a stockholder or stockholders without paying the taxes due to the Government, such stockholder receiving those assets is a
Petitioner, as sole stockholder, received all of the assets of the company at a time when it was liable for income taxes. These facts would indicate liability as a transferee rather than as a fiduciary. The respondent, conceding that the burden lies with him to go forward with the evidence in this respect, maintains that petitioner took the assets of the company under an express trust for the benefit of creditors. If such a trust was, in fact, created, petitioner would be a fiduciary under the Code.
The sole basis for this contention stems from a conversation between petitioner and an agent for the Internal Revenue Service which *164 occurred a few years after the corporate liquidation. Concerning this conversation, the agent testified that he was "quite sure" that petitioner told him that the assets he received *181 from the company were "trust funds." Assuming that petitioner, in fact, made this statement, we still cannot attach any significance to a statement of a legal conclusion made by a layman.
Under the applicable Wisconsin Statute, *182 advances made by customers to pay subcontractors and materialmen are made "trust funds" for the benefit of such subcontractors and materialmen. This trust fund could not inure to the benefit of other creditors or to the Government, but only to the benefit of certain subcontractors and materialmen. This is not the type of trust envisioned under the fiduciary liability section of the Code. To comply with that section all of the assets of the corporation must be transferred for distribution to all creditors.
Respondent has offered no evidence of an express trust created over all of the assets of the company. On the basis of what we have before us, we are unable to find as a fact that any such express trust was ever created between petitioner and the company.
We next must see whether petitioner is included under
The word "fiduciary" used in the Internal Revenue Code is not mentioned in the Revised Statutes. It is, however, descriptive of the types of persons intended *183 to be covered under the statute. The statute provides that the person covered is executor, administrator, assignee, or other person who pays a debt due by the person "for whom or for which he acts."
The mere payment of a debt for another person will not automatically cause one to be included under this section. The crucial test, therefore, looking at both the Internal Revenue Code and the Revised *165 Statutes, is whether the payment of the debts were made by one who is acting for the debtor in a fiduciary or representative capacity.
Petitioner can only be liable as a fiduciary if he, in fact, received the assets from the company as an officer or director for the purpose of liquidating the corporate debts rather than as a stockholder, and that he paid these debts in his capacity as a representative of the company.
In the absence of any written agreement, we look to the actions of petitioner toward the corporate assets in determining the course he was pursuing. Did petitioner in fact treat the assets as a director, having no interest in the assets until after all of the corporate debts were liquidated, or did he receive them *184 as a stockholder to distribute according to his own discretion? A review of the entire record indicates that the latter situation was pursued.
Petitioner was not liquidating the contracting business. The net effect of the transaction was merely to eliminate the corporation and to transfer the entire business to himself personally. Assets and liabilities were turned over to the new sole proprietorship. Many of the corporate debts had to be paid under the embezzlement provision of Wisconsin law. Other debts were paid since it was necessary in order to remain in business. Petitioner had always dealt with his creditors on an individual basis, and many of the contracts were signed in his individual capacity. Creditors were not even aware of the corporate setup. Many of these debts would have, therefore, been paid to liquidate personal liability. His intention was to pay these debts as a debtor rather than as any representative or fiduciary of the company.
We have no evidence that petitioner was acting on behalf of the corporation. The mere payment of debts or, indeed, even the promise to pay another's debts, is insufficient to create a fiduciary relationship.
A stockholder receiving all of the assets of a corporation is one of the clearest cases of one receiving assets in his own behalf, and he will be presumed to be acting on his own behalf as a transferee unless there is a clear showing to the contrary. In the absence of such proof, we cannot find that petitioner was acting as a fiduciary upon receipt and distribution of the corporate assets.
*166 Under Wisconsin Statutes *187 *188 when a corporation distributes its assets without first satisfying its creditors, the directors and stockholders may be liable only to the corporation. There is no provision for direct liability on their part to creditors thus defrauded, nor is there any trust created for creditors upon these assets. Respondent, nevertheless, relies on two Wisconsin cases which hold that, upon insolvency *186 of a corporation, the assets become, by equitable conversion, a trust fund for the benefit of creditors. Therefore, respondent concludes that petitioner, as an equitable trustee under Wisconsin law, is a fiduciary within the meaning of the Code. Respondent contends, then, that all persons who hold property impressed with an equitable trust are liable as fiduciaries. This contention has been rejected by this Court in
But if we should assume that liability did exist under that [trust fund] doctrine, we would still be of the opinion that petitioner does not fall within the provisions of section 281 which relates to fiduciaries. The Act itself, in section 200(b), defines a fiduciary in such manner as to make it clear that it refers to one
The sole basis for transferee liability is that the recipient of the funds is, under certain circumstances, deemed to hold them in constructive *167 trust for certain creditors. See
The existence of an
The mere finding of a "trust fund," then, is insufficient to deem the holder a fiduciary under the statute. If a trust is created out of the nature of the transfer, such as the transfer of assets for the benefit *190 of another, then the holder is a fiduciary. On the other hand, if a trust arises because the person receiving the assets was not rightfully entitled to them, he is a transferee. In the latter situation, the debtor has divested himself completely of the assets to another and this transfer, if prejudicial to other creditors, can be avoided. In the former situation, on the other hand, the debtor by placing his assets with a representative has not divested himself completely of the assets to defraud creditors, inasmuch as his creditors have a beneficial interest in them pursuant to the very nature of the assignment. The transfer to a fiduciary cannot be avoided, and liability attaches to the fiduciary only if he fails to recognize legal priorities in discharging his obligation under the trust.
The distinction between the two different types of trusts was also recognized in
Becoming insolvent, the equitable interest of the stockholders in the property, together with their conditional liability to the creditors, places the property in *168 a condition of trust, first, for the creditors, and then for *191 the stockholders. Whatever of trust there is arises from the peculiar and diverse equitable rights of the stockholders as against the corporation in its property and their conditional liability to its creditors. It is rather a trust in the administration of the assets after possession by a court of equity than a trust attaching to the property, as such, for the direct benefit of either creditor or stockholder.
An analogous situation to the one before us concerns a provision in the Bankruptcy Act which exempts persons "acting in any fiduciary capacity." The issue arose as to whether one placed in a fiduciary capacity by operation of equity was included under this section. It was held that to include such equitable trustees would nullify the provision, since almost all insolvent debtors were also equitable trustees. The term was held to include only trusts actually created in law, rather than implied or constructive trusts.
The above reasoning also applies to our situation. The sole basis for transferee liability is that a trust is created in equity for the benefit of creditors. Wherein would lie the distinction if we were to hold that such *192 equitable trustees were fiduciaries rather than transferees? This would completely nullify the difference between the two liabilities, and, indeed, eliminate transferee liability.
Respondent also claims that petitioner was a fiduciary within the definition of a fiduciary in the Uniform Fiduciaries' Act which has been adopted by the State of Wisconsin. This act includes in its definition of a fiduciary an agent and an officer of a corporation. While we agree that petitioner was an agent and an officer of a corporation, and, therefore, may have been a fiduciary within the meaning of that act, such a determination is not determinative of fuduciary liability under the Code. It is not enough merely to find whether one is a fiduciary and then automatically apply fiduciary liability. The determining factor is still whether the assets were
Finally, respondent *193 relies upon our decision in
One of the main objectives of the provisions for transferee liability in the Code is to provide an effective remedy for such a situation as that presented in the instant case. To accept respondent's contention that such persons are fiduciaries rather than transferees would create the anomalous result of providing a statutory remedy only to the extent of the corporate debts they pay with the corporate assets but providing no statutory remedy for recovery of the assets they retain for themselves.
Respondent has failed to show any evidence that petitioner ever received the assets impressed with an express trust or that he received them as a representative or an agent for the corporation. This cannot be presumed from the transfer of assets and the subsequent payment of corporate debts or by the operation of equity.
We have not closed our eyes to the obvious fact that the company was liquidated with *195 the full knowledge on the part of petitioner of the pending tax liability, but this is clearly one of the situations sought to be remedied by proceeding on the basis of transferee liability.
The statute of limitations has obviously barred transferee liability (
1. These are offsetting accounts. The jobs in process account represents amounts paid for workmen and supplies, while the advance billing account represents amounts received for those expenses from the owner.↩
1.
(a) Method of Collection. -- 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 a tax imposed by this chapter * * * (1) Transferees. -- 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 chapter. (2) Fiduciaries. -- The liability of a fiduciary under
2.
Whenever any person indebted to the United States is insolvent, or whenever the estate of any deceased debtor, in the hands of the executors or administrators, is insufficient to pay all the debts due from the deceased, the debts due to the United States shall be first satisfied; * * *
Every executor, administrator, or assignee, or other person, who pays, in whole or in part, any debt due by the person or estate for whom or for which he acts before he satisfies and pays the debts due to the United States from such person or estate, shall become answerable in his own person and estate to the extent of such payments for the debts so due to the United States, or for so much thereof as may remain due and unpaid.
(
3.
4.
180.40 Liability of directors and shareholders. (1) In addition to any other liabilities imposed by law upon directors of a corporation:
* * * *
(c) Directors of a corporation who vote for or assent to any distribution of assets of a corporation to its shareholders during the liquidation of the corporation without the payment and discharge of, or making adequate provision for, all known debts, obligations and liabilities of the corporation shall be jointly and severally liable to the corporation for the value of such assets which are distributed, to the extent that such debts, obligations * * * and liabilities of the corporation are not thereafter paid, discharged or barred by statute.
* * * *
(5) In addition to any other liabilities imposed by law upon shareholders of a corporation:
* * * *
(b) Any shareholder receiving any dividend or distribution of the assets of the corporation which dividend is paid or distribution is made contrary to the provisions of this chapter or contrary to any restrictions contained in the articles of incorporation shall be liable to the corporation for the amount received by said shareholder which is paid or distributed in excess of the amount which could have been paid or distributed without a violation of the provisions of this chapter or any restrictions in the articles of incorporation.
* * * *
The note of the Revision Committee, under
* * * 180.40(1) establishes more definite standards to measure and limit directors' liability than 182.19 (1) and (5) (1949) and the theory is that a director's liability is a liability to the corporation rather than to stockholders or creditors.
* * * *
* * * 180.40(55) is similar to 182.19(1) (1949) in imposing liability to the corporation on shareholders who receive improper dividends or distributions.↩
5. In holding that petitioner is not liable in this proceeding as a fiduciary, we do not mean to suggest that if he is still indebted to the company, and such indebtedness may be treated as an asset of the company, the Government may not have a means of reaching such assets in an appropriate proceeding in another tribunal brought to collect the assessment that was made against the company.↩
Wabash, St. Louis & Pacific Railway Co. v. Ham ( 1885 )
Conard v. Atlantic Ins. Co. of NY ( 1828 )
Hollins v. Brierfield Coal & Iron Co. ( 1893 )
United States v. Stephens ( 1953 )
Hutton v. Commissioner of Internal Revenue ( 1932 )
Updike v. United States ( 1925 )
Crocker v. Commissioner of Internal Revenue ( 1936 )