*1258 When two affiliated corporations make a consolidated return and include therein a duly executed Form 1122, directing that none of the tax due therein shall be assessed to the subsidiary corporation, the Commissioner must assess such tax in conformity with the agreement between the corporations. In such circumstances the parent corporation only is subject to assessment. If it thereafter acquires all the assets of the subsidiary, its liability as a taxpayer having been fixed by the agreement, it can not then be held liable as a transferee.
*1057 The respondent has determined liability under section 280 of the Revenue Act of 1926 against the petitioner, as a transferee of the assets of the Kraker Pen Company, in the amount of $5,037.84, representing unpaid income and profits taxes for the year 1920. The deficiency upon which such determination is based is not in controversy. The petitioner contends (1) that in the circumstances herein the respondent had no authority to determine any deficiency against the taxpayer, and (2) that in any event the statute*1259 of limitations had run against the taxpayer and the transferee at the date of the liability notice.
FINDINGS OF FACT.
The petitioner is a Delaware corporation, with its principal office at Fort Madison, Iowa. The Kraker Pen Company, dissolved at December 31, 1921, was a Missouri corporation with its principal office at Kansas City. It will hereinafter be designated as the taxpayer. At the date of its dissolution and for all the time material here the taxpayer and the petitioner were affiliated as a result of the ownership of 99 per cent of the stock of the former by the latter.
On March 14, 1921, the petitioner, as the parent corporation, filed a consolidated income tax return for itself and the taxpayer. Attached to such returns as supporting schedules were separate, unsigned returns of the affiliated corporations disclosing all receipts and deductions necessary to determine the true tax liability of each. Attached to such consolidated return there was a duly executed Form 1122, in which it was stated that none of the tax due under such return was to be paid by the Kraker Pen Company. In due course the petitioner paid the entire tax indicated on the consolidated return*1260 and on December 31, 1921, received $5,365.57 from the taxpayer, which represented its part of the tax liability of the affiliated corporations.
On September 14, 1925, a waiver was executed and transmitted to the Commissioner which is as follows:
INCOME AND PROFITS TAX WAIVER
For Taxable Years Ended Prior to January 1, 1922.
SEPTEMBER 14, 1925
In pursuance of the provisions of existing Internal Revenue laws Kraker Pen Company, a taxpayer of Kansas City, Missouri, and the Commissioner of Internal Revenue hereby waive the time prescribed by law for making any assessment of the amount of income, excess-profits, or war-profits taxes due under any return made by or on behalf of said taxpayer for the years 1920 and 1921 under existing revenue acts, or under prior revenue acts.
This waiver of the time for making any assessment as aforesaid shall remain in effect until December 31, 1926, and shall then expire except that if a notice of a deficiency in tax is sent to said taxpayer by registered mail before said date and (1) no appeal is filed therefrom with the United States Board of Tax Appeals then said date shall be extended sixty days, or (2) if an appeal is filed with*1261 said Board then said date shall be extended by the number of days between the date of mailing of said notice of deficiency and the date of final decision by said Board.
W. A. SHEAFFER PEN CO., Taxpayer.
By: C. R. SHEAFFER, Treasurer.
D. H. BLAIR, Commissioner.
If this waiver is executed on behalf of a corporation, it must be signed by such officer or officers of the corporation as are empowered under the laws of the State in which the corporation is located to sign for the corporation, in addition to which, the seal, if any, of the corporation must be affixed.
On January 22, 1926, a second waiver was executed and transmitted to the Commissioner which is as follows:
INCOME AND PROFITS TAX WAIVER.
For Taxable Years Prior to January 1, 1922.
JANUARY 22, 1926.
In pursuance of the provisions of existing Internal Revenue laws Kraker Pen Company, a taxpayer of Fort Madison, Iowa, and the Commissioner of Internal Revenue hereby waive the time prescribed by law for making any assessment of the amount of income, excess-profits, or war-profits taxes due under any return made by or on behalf of said taxpayer for the years 1920 and 1921 under existing revenue*1262 acts, or under prior revenue acts.
*1058 This waiver of the time for making any assessment as aforesaid shall remain in effect until December 31, 1926, and shall then expire except that if a notice of a deficiency in tax is sent to said taxpayer by registered mail before said date and (1) no appeal is filed therefrom with the United States Board of Tax Appeals then said date shall be extended sixty days, or (2) if an appeal is filed with said Board then said date shall be extended by the number of days between the date of mailing of said notice of deficiency and the date of final decision by said Board.
KRAKER PEN COMPANY
By: W. A. SHEAFFER PEN COMPANY, Manager and Assignee of said KRAKER PEN COMPANY, Taxpayer.
By C. R. SHEAFFER, Treasurer,
W. A. SHEAFFER PEN COMPANY.D. H. BLAIR, Commissioner.
If this waiver is executed on behalf of a corporation, it must be signed by such officer or officers of the corporation as are empowered under the laws of the State in which the corporation is located to sign for the corporation, in addition to which, the seal, if any, of the corporation must be affixed.
On October 26, 1926, a third waiver was executed, *1263 in the following terms:
*1059 INCOME AND PROFITS TAX WAIVER
FOR TAXABLE YEARS ENDED PRIOR TO JANUARY 1, 1923.
OCTOBER 27, 1926.
In pursuance of the provisions of existing Internal Revenue laws Kraker Pen Company, a taxpayer of Kansas City, Mo., and the Commissioner of Internal Revenue hereby waive the time prescribed by law for making any assessment of the amount of income, excess-profits, or war-profits taxes due under any return made by or on behalf of said taxpayer for the years 1920, 1921, and 1922 under existing revenue acts, or prior revenue acts.
This waiver of the time for making any assessment as aforesaid shall remain in effect until December 31, 1927, and shall then expire except that if a notice of a deficiency in tax is sent to said taxpayer by registered mail before said date and (1) no appeal is filed therefrom with the United States Board of Tax Appeals then said date shall be extended sixty days, or (2) if an appeal is filed with said Board then said date shall be extended by the number of days between the date of mailing of said notice of deficiency and the date of final decision by said Board.
KRAKER PEN COMPANY,
Taxpayer.
AFFIX SEAL*1264 HERE By: W. A. SHEAFFER PEN CO.,
C. R. SHEAFFER, Treasurer.
D. H. BLAIR, Commissioner.
If this waiver is executed on behalf of a corporation, it must be signed by such officer or officers of the corporation as are empowered under the laws of the State in which the corporation is located to sign for the corporation, in addition to which, the seal, if any, of the corporation must be affixed.
On October 27, 1925, and October 27, 1926, the petitioner executed waivers extending the time for making assessments against it as to its income tax liability for the years 1920, 1921 and 1922 to December 31, 1926, and December 31, 1927, respectively.
On April 8, 1926, and March 5, 1927, the Commissioner asserted deficiencies against the taxpayer in the respective amounts of $4,381.86 and $655.99. The deficiency notices were addressed to the taxpayer, which was dissolved on December 31, 1921, and were received by the petitioner. Appeals from such determinations were seasonably filed by the petitioner. The two proceedings thus initiated were heard at Washington on October 28, 1930, and thereafter, on December 30, 1930, the Board promulgated a decision in which both were dismissed*1265 for lack of jurisdiction in the Board. . The basis of that decision was that the petitioner seeking a redetermination was not the taxpayer to which the deficiency notices had been mailed.
On January 24, 1928, while the proceedings above noted were still pending before the Board, the respondent mailed a notice to the petitioner asserting its liability under section 280 of the Revenue Act of 1926 for income and profits taxes due from the Kraker Pen Company *1060 in the amount of $5,037.84, which is the sum of the two deficiencies previously asserted against the taxpayer.
On or about December 30, 1921, the petitioner acquired all the assets and assumed all the liabilities of the taxpayer by distribution to it as the sole stockholder and thereafter and in conformity with the laws of Missouri, the taxpayer was dissolved as of December 30, 1921.
OPINION.
LANSDON: The petitioner's first contention is that by reason of the inclusion of a duly executed Form 1122 in the consolidated return, the Commissioner was without authority to assess any tax against the Kraker Pen Company. *1266 Its counsel argues that the return and the facts clearly indicate an agreement that the entire tax liability under the consolidated return should be assessed to the petitioner. In many proceedings in which no such agreement was proved, we have held that the respondent, under the law, must prorate the tax liability shown on a consolidated return to the several members of an affiliated group in proportion to their respective incomes. ; ; ; ; ; . The courts have quite consistently adopted the view that in the absence of any agreement the tax shown upon a consolidated return must be ratably assessed against the several members of the affiliation. ; *1267 . In , there was an agreement that all the tax due on a consolidated return should be paid by the New England Collapsible Tube Company, and we held that no part of such tax was assessable against another member of the affiliated group. In the light of the above decisions it is clear that the settled law requires the Commissioner to assess the tax shown on a consolidated return in conformity with the agreement between the affiliated corporations. It follows, therefore, that the Kraker Pen Company was not liable to assessment for any income and profits tax due under the consolidated return and that its assets when transferred to the petitioner at December 31, 1921, were impressed with no trust in favor of the Government for unpaid taxes for the year 1920. It is not necessary to decide whether the waivers executed for the taxpayer by the petitioner or its officers are valid. The tax in question was not assessable against the Kraker Pen Company and the validity of waivers of the time for assessment thereof is wholly immaterial to any issue here involved.
*1268 *1061 Under the terms of the agreement only the petitioner was liable for any assessment under the consolidated return, and at December 31, 1921, when it took over all the assets of the taxpayer, it became liable at law for all the unpaid obligations of the dissolved corporation. Unless extension by consent had been obtained the period within which such an assessment could be made expired on March 15, 1926. Valid waivers extended the time to ,December 31, 1927. No assessment was made before that date, but on January 24, 1928, the Commissioner notified the petitioner that it was liable as a transferee for the unpaid income and profits taxes of the taxpayer for the year 1920. The petitioner's liability to assessment as a taxpayer, which it was in fact and in law in the circumstances herein, was tolled at December 31, 1927. In our opinion such liability can not later be revived by a determination under section 280. See .
Reviewed by the Board.
Decision will be entered for the petitioner.
ARUNDELL, dissenting: I desire to state briefly the basis of my dissent from the majority opinion. Section*1269 230, Revenue Act of 1918, imposes a tax "upon the net income of every corporation" and the company whose income is in question here is the Kraker Pen Company. Under section 240 of the same act the W. A. Sheaffer Pen Company and the Kraker Pen Company were affiliated and were thus required to file a consolidated return, which they did. A corporation does not cease to be a taxpayer, however, by reason of affiliation. Woolford Realty Co. v. Rose,286 U.S. 319">286 U.S. 319. The provision in section 240 which permits corporations joining in a consolidated return to agree upon an apportionment of the tax among themselves is purely administrative and is for the convenience of the corporations. Thus, when the Government was advised, pursuant to the statutory provisions, that the Sheaffer Company would pay the Kraker Company's tax, it had a right to look to the Sheaffer Company as the Kraker Company's agent in this matter, as it indeed became. Several years elapsed after the filing of the consolidated return, during which period the tax liability of the Kraker Company was under examination by the Commissioner of Internal Revenue, as a result of which inquiry a deficiency was determined*1270 against it. During this period of investigation the Sheaffer Company on several occasions gave the waivers which have been set forth in the majority report. The right of the Sheaffer Company to waive the statutory period of limitations for its principal, the Kraker Company, seems beyond question, and the Government had a perfect right to rely upon those waivers, and in fact did so. Certainly in this proceeding which is directed against the Sheaffer Company as a transferee of *1062 the assets of the Kraker Company, it should not be heard to say that it had no authority to waive the statute in behalf of the Kraker Company. Cf. Lucas v. Hunt, 45 Fed.(2d) 781; Warner Collieries Co. v. United States, 63 Fed.(2d) 34. While thus an agent of the Kraker Company in its income tax matters, the Sheaffer Company took over the assets of the Kraker Company and became a transferee thereof and under the law may be proceeded against as such transferee. The statute allows an extra year within which to proceed against a transferee beyond the period in which assessment may be made against the original taxpayer, and the facts here show that well within*1271 that time the present proceedings were initiated.
SMITH and MCMAHON agree with the above dissent.