*311 This proceeding is brought to redetermine the liability of the petitioner as transferee for deficiencies in income and excess-profits taxes of the Mutual Oil Company of Arizona, Mutual Oil Company of Maine, Mutual Refining and Producing Company, and Northwestern Oil Refining Company for the periods from January 1 to February 28, 1919, inclusive, March 1 to December 31, 1919, inclusive, *312 and January 1 to March 15, 1920, inclusive, in the sums of $9,405.17, $20,648.17, and $56,113.14, respectively.
The petitioner alleges the following errors:
(1) Section 280 of the Revenue Act of 1926 is unconstitutional.
(2) Under the facts adduced the petitioner is not liable in law or in equity for the taxes alleged to be due from corporations primarily liable therefor.
(3) There is no such primary liability on account of the following errors of the respondent.
(a) The apportionment of invested capital among the said four corporations was incorrect.
(b) The income of the Mutual Oil Company of Maine, and its*1891 subsidiaries for the period from January 1 to March 15, 1920, should have been $79,657.27 instead of $196,469.18.
(c) No credit was given for taxes in the amount of $200,707.45 paid on behalf of subsidiary companies for the period from January 1 to March 15, 1920, inclusive.
(d) The reduction of invested capital by $21,785.82 representing an alleged deficiency in the tax of the Mutual Oil Company, of Arizona, for the period from March 1 to December 31, 1918. Under Docket No. 11795 the Board reduced this amount to $15,779.54, which amount, until or unless altered upon appeal, is conceded to be correct.
(4) The proposed assessments are barred by the appropriate statutes of limitations.
FINDINGS OF FACT.
The following facts were stipulated:
The petitioner (formerly named Elk Basin Consolidated Petroleum Company) is a corporation, organized and existing under and by virtue of the laws of the State of Maine, having its office and principal place of business at the Continental Oil Building, Denver, Colo.
The deficiency letters propose to assess the liability at law or in equity (if any) of the petitioner as transferee of the assets of the Mutual Oil Company of Arizona, *1892 Mutual Refining and Producing Company, Northwestern Oil Refining Company in respect to alleged deficiency of income and excess-profits taxes of said companies for the period January 1 to February 28, 1919, as transferee of the assets of Mutual Oil Company of Maine, Mutual Oil Company of Arizona, Mutual Refining and Producing Company, and Northwestern Oil Refining Company in respect to alleged deficiency of income and excess-profits taxes for the periods March 1, 1919, to December 31, 1919, and January 1, 1920, to March 15, 1920.
*313 The alleged deficiencies are as follows:
| Mutual Oil Company of Arizona, Mutual Refining and Producing | |
| Company, and Northwestern Oil Refining Company, January 1 to | |
| February 28, 1919 | $9,405.17 |
| Mutual Oil Company of Maine, Mutual Oil Company of Arizona, | |
| Mutual Refining and Producing Company, and Northwestern Oil | |
| Refining Company, March 1 to December 31, 1919 | $20,648.17 |
| Mutual Oil Company of Maine, Mutual Oil Company of Arizona, | |
| Mutual Refining and Producing Company, and Northwestern Oil | |
| Refining Company, January 1 to March 15, 1920 | $56,113.14 |
On the first day of March, 1919, the Mutual Oil Company of Maine purchased*1893 all the capital stock of the Mutual Oil Company of Arizona, the Mutual Refining and Producing Company, the Northwestern Oil Refining Company, and said Mutual Oil Company of Maine, as parent company, filed on May 15, 1920, a consolidated income and profits-tax return for the calendar year 1919, including therein the income of the three companies whose stock had been so purchased as aforesaid, and setting up a consolidated invested capital for all such companies for said entire calendar year 1919.
Thereafter, the respondent audited the books and returns of the said Mutual Oil Company of Maine and the three subsidiaries above mentioned and determined that a Class B consolidation existed among Mutual Oil Company of Arizona, Mutual Refining and Producing Company and the Northwestern Oil Refining Company for the period January 1 to February 28, 1919, and a Class A consolidation with the Mutual Oil Company of Maine as parent and the three just above named companies as subsidiaries for the period March 1 to December 31, 1919.
The respondent fixed the invested capital for the Class B consolidation at January 1, 1919, at the sum of $1,561,523.16 and for the purpose of determining excess-profits*1894 taxes, apportioned to the period January 1 to February 28, one-sixth thereof, to wit, the sum of $260,253.86. Respondent fixed the invested capital of the Class A consolidation at March 1, 1919, at the sum of $1,999,461.88, and for the purpose of determining excess-profits taxes, apportioned to the ten-month period the sum of $1,666,218.22. The accuracy of the figures is conceded, the propriety of the apportionment of invested capital being in controversy.
The said Mutual Oil Company of Arizona, Mutual Refining and Producing Company, and Northwestern Oil Refining Company were in existence and carrying on and conducting their respective businesses throughout the calendar year 1919 and their consolidated invested capital at the end of said year would have been $1,561,523.16, but for the change effected by purchase by the Mutual Oil Company of Maine of the entire capital stock of said three companies. The *314 Mutual Oil Company of Maine as parent company and the three above named companies, namely, Mutual Oil Company of Arizona. Mutual Refining and Producing Company, and Northwestern Oil Refining Company continued to carry on their business as parent and subsidiaries for*1895 the remainder of the calendar year beginning March 1, 1919, and were in existence and in the same relation at the end of such calendar year and the consolidated invested capital of Mutual Oil Company of Maine and its subsidiaries was the same at the end of the calendar year as at the beginning of said consolidation, to wit, $1,999,461.88.
The net income of the Mutual Oil Company of Arizona, the Mutual Refining and Producing Company, and the Northwestern Oil Refining Company for the period January 1 to February 28, 1919, was the sum of $49,867.16; and the net income of the Mutual Oil Company of Maine and above named companies for the period March 1 to December 31, 1919, was the sum of $442,732.40. The said net incomes of $49,867.16 and $442,732.40 were allocated by respondent as follows:
| Company | Feb. 28, 1919 | Dec. 31, 1919 |
| Mutual Oil Company of Maine | ($9,354.77) | |
| Mutual Oil Company of Arizona | $34,828.18 | 139,458.57 |
| Mutual Refining & Producing Co | (11,525.04) | 179,808.50 |
| Northwestern Oil Refining Co | 26,564.02 | 132,820.10 |
| Total | 49,867.16 | 442,732.40 |
On the 15th day of March, 1920, Elk Basin Consolidated Petroleum Company acquired the entire capital*1896 stock of the Mutual Oil Company of Maine and its subsidiaries by the issuance of its own capital stock. Thereafter, the Elk Basin Consolidated Petroleum Company duly filed its income and profits-tax return for the year 1920, including therein the income of the Mutual Oil Company of Maine and all its subsidiaries for the entire calendar year and setting up and asserting the consolidated invested capital, including that of the said Mutual Oil Company of Maine and its subsidiaries as at January 1, 1920.
Thereafter, the respondent audited the return of said Elk Basin Consolidated Petroleum Company in connection with its books, accounts and records and determined that a consolidation existed with the Mutual Oil Company of Maine as parent, Mutual Refining and Producing Company, Northwestern Oil Refining Company and Mutual Oil Company of Arizona as subsidiaries for the period January 1 to March 15, 1920, and a new consolidation with the Elk Basin Consolidated Petroleum Company as parent, the Mutual Oil *315 Company of Maine and its said subsidiaries as subsidiaries for the period March 15 to December 31, 1920.
For the period January 1 to March 15, respondent fixed invested capital*1897 at January 1, 1920, at the sum of $3,192,636.27 and apportioned to the period January 1 to March 15, 1920, two and a half twelfths thereof, to wit, $665,132.55. The accuracy of the figures is conceded, the propriety of the apportionment of invested capital being in controversy.
The respondent has fixed the consolidated invested capital for the period beginning March 15, 1920, and ending December 31, 1920, at the sum of $7,926,731.74. Petitioner claims an invested capital in excess thereof.
The said Mutual Oil Company of Maine, Mutual Oil Company of Arizona, Mutual Refining and Producing Company and Northwestern Oil Refining Company were in existence, carrying on and conducting their respective businesses throughout the calendar year 1920, and throughout said year and at the end thereof, their consolidated invested capital was the same as at the beginning, except as a result of the purchase of the said capital stock of the Mutual Oil Company of Maine and its subsidaries by the Elk Basin Consolidated Petroleum Company.
For the year 1920 the income of the Mutual Oil Company of Arizona was the sum of $187,905.41, the income of the Northwestern Oil Refining Company was the sum*1898 of $420,977, and the income of the Mutual Refining and Producing Company was the sum of $403,672.45, as determined by respondent, of which net incomes respondent apportioned to the period January 1 to March 15, 1920, two and one-half twelfths thereof in the following amounts:
| Mutual Oil Company of Arizona | $37,991.80 |
| Mutual Oil Company of Maine, loss (actual) | 8,255.02 |
| Northwestern Oil Refining Company | 85,115.57 |
| Mutual Refining & Producing Company | 81,616.83 |
| Total net income | 196,469.18 |
Exhibit C filed with the stipulation is a statement purporting to show the net income of the Mutual Refining and Producing Company for the period January 1 to March 15, 1920, which statement truly and accurately reflects such income so far as same may be determined without an actual closing of the books, it being stipulated that such closing was not made. The respondent does not concede that his method of determining the net income for the period is incorrect.
Exhibit D attached to the stipulation is a statement purporting to show the net income of the Northwestern Oil Refining Company for the period January 1 to March 15, 1920, which statement truly *316 and accurately*1899 reflects such income so far as same may be determined without an actual closing of the books, it being stipulated that such closing was not made. The respondent does not concede that his method of determining the net income for the period is incorrect.
Attached to the stipulation (marked Exhibit E) is a statement purporting to show the net income of the Mutual Oil Company of Arizona from January 1 to March 15, 1920, arrived at by determining the ratio of gross profits to sales for the entire year and applying such ratio to the period January 1 to March 15, 1920, as to all departments except the Chanute Refinery. Such statement, except page one headed Statement of Income for First Two and One-half months of 1920, correctly shows the entries in the books of said company, the propriety of such method of computing net income, however, not being admitted by the respondent. No monthly inventories were taken for the period involved except that the net income of the Chanute Refinery was determined by using monthly inventories of stocks, it being also stipulated that the books of the Chanute Refinery were not closed monthly. The respondent does not concede that his method of determining*1900 the net income of the Mutual Oil Company of Arizona for the period January 1 to March 15, 1930, is incorrect.
The net loss of the Mutual Oil Company of Maine, which owned only the stocks of the Mutual Oil Company of Arizona, Northwestern Oil Refining Company and the Mutual Refining and Producing Company for the period from January 1 to March 15, 1920, was the sum of $8,255.02.
On the 30th day of April, 1921, the Northwestern Oil Refining Company assigned, transferred, conveyed and released without consideration all its right, title and interest in and to all its property, real, personal and mixed, to the Mutual Oil Company of Arizona and thereafter dissolved. The value of the property so transferred was sufficient over and above all liabilities to pay the liability, if any, for the income and profits taxes of the Northwestern Oil Refining Company at the time of such transfer. The petitioner does not concede any liability on its part for such taxes.
On the 30th day of April, 1921, the Mutual Refining and Producing Company assigned, transferred, conveyed and released without consideration all its right, title and interest in and to all its property, real, personal and mixed, *1901 to the Mutual Oil Company of Arizona and thereafter dissolved. The value of the property so transferred was sufficient over and above all liabilities to pay the liability, if any, for the income and profits taxes of the Mutual Refining and Producing Company at the time of such transfer. The petitioner does not concede any liability on its part for such taxes.
*317 On December 31, 1921, the Mutual Oil Company of Arizona assigned, transferred, conveyed and released without consideration all its right, title and interest in and to all its property, real, personal and mixed, to the Mutual Oil Company theretofore the Elk Basin Consolidated Petroleum Company and thereafter dissolved. The value of the property so transferred was sufficient over and above all liabilities to pay the liability, if any, for income and profits taxes of the Mutual Oil Company of Arizona, and also to pay the liability, if any, for the income and profits taxes of the Northwestern Oil Refining Company and the Mutual Refining and Producing Company at the time of such transfer. Petitioner does not concede any liability on its part for such taxes.
On March 15, 1920, the Mutual Oil Company of Maine assigned, *1902 transferred, conveyed and released all its right, title and interest in and to all its property, real, personal and mixed, to the Elk Basin Consolidated Petroleum Company in exchange for 600,000 shares of the stock of the Elk Basin Consolidated Petroleum Company and dissolved on January 12, 1921. The value of the assets so transferred was sufficient over and above any liability for income and profits taxes of the Mutual Oil Company of Maine at the time of such transfer. Petitioner does not concede any liability on its part for such taxes.
On December 22, 1921, the Elk Basin Consolidated Petroleum Company changed its name to the Mutual Oil Company and subsequently in the year 1925 the said Mutual Oil Company again changed its name to the Continental Oil Company, which latter company is the petitioner named herein.
The invested capital at the beginning of the period January 1, 1919, has been reduced by the sum of $21,785.82 representing an alleged liability for additional taxes for the Mutual Oil Company of Arizona for the period March 1 to December 31, 1918. The amount of this liability has been fixed by the Board in the appeal of the Mutual Oil Company of Arizona, Docket No. *1903 11795, at $15,779.54, which the petitioner does not concede as correct, but which until reversal of the decision of the Board, must be taken to be correct. The invested capital for the period ended December 31, 1919, should be changed to reflect the difference between said $21,785.82 and said sum of $15,779.54.
The Elk Basin Consolidated Petroleum Company as aforesaid, filed its return for the calendar year 1920 including therein the income of the Mutual Oil Company of Maine, the Mutual Refining and Producing Company, the Northwestern Oil Refining Company and the Mutual Oil Company of Arizona and paid a tax thereon in the sum of $200,707.45. That no credit for such payment has been made by the respondent in arriving at the alleged deficiency in taxes for *318 the period January 1, to March 15, 1920; that a certificate of over-assessment in the sum of $12,779.97 has been issued to the Elk Basin Consolidated Petroleum Company for the year 1920 which gave credit for said sum of $200,707.45, which certificate was protested by the Elk Basin Consolidated Petroleum Company and its claim for refund has not been finally determined.
On or about the 15th day of May, 1920, the Mutual*1904 Oil Company of Maine, as parent, the Mutual Oil Company of Arizona, the Mutual Refining and Producing Company and the Northwestern Oil Refining Company filed a consolidated return for the calendar year 1919, showing a total tax to be due of $97,986.28, which sum was duly assessed against it by respondent and which it duly paid as required by law. No other assessment has been made against the said Mutual Oil Company of Maine, the Mutual Oil Company of Arizona, Mutual Refining and Producing Company and the Northwestern Oil Refining Company, and no suit or proceeding has been begun against them or any of them for the assessment and/or collection of the deficiencies set forth in the deficiency letters aforesaid or any part thereof.
On or about the 15th day of March, 1921, the Elk Basin Consolidated Petroleum Company, as parent, the Mutual Oil Company of Maine, the Mutual Oil Company of Arizona, the Mutual Refining and Producing Company and the Northwestern Oil Refining Company filed a consolidated return of income for the calendar year 1920, showing thereon an income and profits tax to be due in the sum of $200,707.45, which respondent duly assessed against it and which it duly paid*1905 as required by law. That no assessments other than as aforesaid have been made against them or any of them for the calendar year 1920 or any part thereof. That no suit or proceeding for the assessment and/or collection of the alleged deficiency in tax has been begun against it or any of said subsidiaries.
The Mutual Oil Company of Arizona, the Mutual Refining and Producing Company, the Mutual Oil Company of Maine and the Northwestern Oil Refining Company and the respondent have signed waivers, relative to the assessment of the income and excess-profits taxes of said companies as follows:
| Mutual Oil Company of Arizona | ||
| YEAR 1919 | ||
| Date | Extends to - | Exhibit No. |
| 1/27/25 | 12/31/25 | 1 |
| PERIOD 1/1/19 TO 2/28/19 | ||
| 10/27/26 | 12/31/27 | 2 |
| 10/14/25 | 12/31/26 | 3 |
| PERIOD 3/1/19 TO 12/31/19 | ||
| 10/27/26 | 12/31/27 | 4 |
| 3/2/26 | 12/31/26 | 5 |
| PERIOD 1/1/20 TO 3/15/20 | ||
| 10/27/26 | 12/31/27 | 6 |
| 3/2/26 | 12/31/26 | 7 |
| Mutual Refining & Producing Company | ||
| YEAR 1919 | ||
| 7/21/25 | 12/31/25 | 8 |
| PERIOD 1/1/19 TO 2/28/19 | ||
| 10/27/26 | 12/31/27 | 9 |
| 3/2/26 | 12/31/26 | 10 |
| PERIOD 3/1/19 TO 12/31/19 | ||
| 10/27/26 | 12/31/27 | 11 |
| 3/2/26 | 12/31/26 | 12 |
| PERIOD 1/1/20 TO 3/15/20 | ||
| 10/27/26 | 12/31/27 | 13 |
| 3/2/26 | 12/31/26 | 14 |
| Mutual Oil Company of Maine | ||
| YEAR 1919 | ||
| 7/21/25 | 12/31/25 | 15 |
| 3/14/25 | 12/31/25 | 16 |
| PERIOD 3/1/19 TO 12/31/19 | ||
| 10/27/26 | 12/31/27 | 17 |
| 10/14/25 | 12/31/25 | 18 |
| PERIOD 1/1/20 TO 3/15/20 | ||
| 10/27/26 | 12/31/27 | 19 |
| 10/14/25 | 12/31/26 | 20 |
| Northwestern Oil Refining Company | ||
| PERIOD 1/1/19 TO 2/28/19 | ||
| 10/27/26 | 12/31/27 | 21 |
| 3/2/26 | 12/31/26 | 22 |
| YEAR 1919 | ||
| 7/21/25 | 12/31/25 | 23 |
| PERIOD 3/1/19 TO 12/31/19 | ||
| 10/27/26 | 12/31/27 | 24 |
| 3/2/26 | 12/31/26 | 25 |
| PERIOD 1/1/20 TO 3/15/20 | ||
| 10/27/26 | 12/31/27 | 26 |
| 3/2/26 | 12/31/26 | 27 |
*320 Petitioner does not concede the validity, competency, relevancy or materiality of such waivers.
It is stipulated that A. Herning and H. P. Ferree, by whom the above waivers, Exhibits 1 to 27, inclusive, were signed as secretary of said corporations, were at the times they signed said waivers the persons authorized by law to execute said waivers on behalf of the said corporations, provided that any officer, director or stockholder of said corporations was authorized by law to execute said waivers on behalf of said corporations.
The petitioner does not concede that the returns, Exhibits*1907 A and B attached to the stipulation, meet the statutory requirement for returns of the Mutual Oil Company of Arizona, Mutual Refining and Producing Company, the Northwestern Oil Refining Company and the Mutual Oil Company of Maine for the taxable periods involved in this proceeding.
*321 We find the following additional facts:
The income as shown by the books did not differ from a situation in which the books had been actually closed at the end of each month with the exception that the depreciation was not computed monthly. Depreciation was the only item which distinguished between the closing and nonclosing of the books. In order to arrive at the income of the Mutual Oil Company of Arizona for the period from January 1, 1920, to March 15, 1920, the ratio of percentages of the gross profit to gross sales was applied to actual sales. Comparison with the two succeeding years in which physical inventories were actually kept from month to month showed the same percentages.
On March 15, 1920, the market value of the capital stock of the Elk Basin Consolidated Petroleum Company was not less than $9 per share.
The Mutual Oil Company of Arizona was dissolved on January 23, 1922. *1908 The Mutual Refining and Producing Company was dissolved on January 12, 1921. The Northwestern Oil Refining Company was dissolved on August 7, 1922. Both the Mutual Refining and Producing Company and the Northwestern Oil Refining Company were organized under the laws of the State of Wyoming.
Exhibit No. 2 referred to in the stipulation of facts is as follows:
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 Mutual Oil Company - Arizona, a taxpayer of Denver, Colorado, 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 period January 1, 1919 to February 28, 1919, 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, 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) *1909 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.
MUTUAL OIL COMPANY - ARIZONA,
Taxpayer.
By A. HERNING, Secretary.
D. H. BLAIR (H.B.R.)Commissioner.
[SEAL.]
*322 All twenty-seven waivers were similar in form and were signed by A. Herning, secretary, on behalf of the respective corporations with the exception of waivers (Exhibit) Nos. 17, 18, 19 and 20, which were signed by H. P. Ferree, secretary, on behalf of the Mutual Oil Company of Maine.
On March 15, 1927, the respondent mailed to the petitioner the following letter:
TREASURY DEPARTMENT,
Washington, Mar. 15, 1927.
IT:CR:G-9-60D
CRS-280
CONTINENTAL OIL COMPANY,
309 First National Bank Building,
Denver, Colorado.
SIRS: As provided in Section 280 of the Revenue Act of 1926, there is proposed for assessment against you the amount of $76,761.31 constituting your liability as a transferee of the assets*1910 of the Mutual Oil Company of Maine, the Mutual Oil Company of Arizona, the Mutual Refining and Producing Company, and the Northwestern Oil Refining Comapny for income and profits taxes due from them for the periods March 1, 1919 to December 31, 1919 and January 1, 1920 to March 15, 1920.
* * *
If you acquiesce in this determination and do not desire to file a petition with the United States Board of Tax Appeals, you are requested to execute a waiver of your right to file a petition with the United States Board of Tax Appeals on the inclosed Form A, and forward it to the Commissioner of Internal Revenue, Washington, D.C., for the attention of IT:CR:G-9-60D-CRS-280. In the event that you acquiesce in a part of the determination, the waiver should be executed with respect to the items to which you agree.
Respectfully,
D. H. BLAIR,Commissioner.
By C. R. NASH,
Assistant to the Commissioner.
Inclosures:
Statement
Form A.
Schedules 1 to 6.
The "statement" named as an inclosure with the above letter is a resume of and comment on the schedules filed with the petitioner's original return for the years 1919 and 1920. The first page of the statement is as*1911 follows:
| STATEMENT OF RETURNS EXAMINED | ||
| AND | ||
| RESULTING TAX LIABILITY | ||
| Returns examined | ||
| Company | Year | Form |
| Mutual Oil Company of Maine (Principal) | 1919 | Tentative 1120. |
| March 15, 1920. | ||
| Mutual Oil Company of Maine (Principal) | 1919 | Final 1120. |
| May 15, 1920. | ||
| Mutual Oil Company of Arizona (Subsidiary) | 1919 | |
| Mutual Refining and Producing Company (Sudsidiary) | 1919 | |
| Northwestern Oil Refining Company (Sub.) | 1919 |
*323 For the year 1920 all of the above companies were included in calendar year return field by the Elk Basin Consolidated Petroleum Company.
| Tax Liability | ||
| Transferor | Year | Deficiency |
| Mutual Oil Company of Maine | 1919 | $20,648.17 |
| Mutual Oil Company of Maine 1920 | 1920 | 56,113.14 |
| Total | 76,761.31 |
| Tax liability under Section 280 of Revenue Act of 1926 | ||
| Transferee | Year | Deficiency |
| Continental Oil Company | 1919 | $20,648.17 |
| Continental Oil Company | 1920 | 56,113.14 |
| Total | 76,761.31 |
The deficiency letter of the respondent, dated March 15, 1927, relating to the period of January 1, 1919, to February 28, 1919, is similar in form. The statement inclosed therein*1912 designates the Mutual Oil Company of Arizona as transferor and asserts its tax liability under section 280 of the Revenue Act of 1926 for a deficiency of $9,405.17.
OPINION.
VAN FOSSAN: The question of the validity of section 280 of the Revenue Act of 1926 has been disposed of by us in (cited in numerous subsequent decisions). See also .
It is obvious that if the appropriate statutes of limitations bar the respondent there is no necessity to discuss the questions raised by the petitioner in allegations of error Nos. 2 and 3. For this reason *324 we will consider first the allegation of the petitioner that such statutes bar the assessment and collection of the taxes proposed for assessment against it and alleged to constitute its liability as a transferee of the assets of the Mutual Oil Company of Maine, the Mutual Oil Company of Arizona, the Mutual Refining and Producing Company, and the Northwestern Oil Refining Company for income and profits taxes ascertained to be due for the periods heretofore mentioned.
Section 280 of the Revenue Act of 1926*1913 provides as follows:
(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 a 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 the 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.
(b) The period of limitation for assessment of any such liability of a transferee or fiduciary shall be as follows:
(1) Within*1914 one year after the expiration of the period of limitation for assessment against the taxpayer; or
(2) If the period of limitation for assessment against the taxpayer expired before the enactment of this Act but assessment against the taxpayer was made within such period, - then within six years after the making of such assessment against the taxpayer, but in no case later than one year after the enactment of this Act.
* * *
It is stipulated that no assessments other than those made pursuant to the original consolidated returns for the calendar years of 1919 and 1920 (which assessments were paid in full) were made for those years or any part thereof against the Mutual Oil Company of Maine, the Mutual Oil Company of Arizona, the Mutual Refining and Producing Company, and the Northwestern Oil Refining Company, and that no suits or proceedings were begun against them or any of them for the assessment and/or collection of the deficiencies alleged by the respondent. Therefore, it is patent that subdivision (b)(2) of section 280 is not applicable. However, the petitioner maintains that a proper construction of subsection (b)(1) serves to bar the assessment of any liability against*1915 the petitioner as the alleged transferee of the corporations above named.
*325 The petitioner contends that the period of limitation for assessment of its liability as a transferee is the 5-year period contemplated by the statute and not such period as extended by the waivers executed by the transferors and the Commissioner of Internal Revenue. We are not impressed with this view. The petitioner assumed the liabilities and infirmities, potential and actual, to which the transferors and the transfered assets were subject. Among these was the obligation to pay any additional income and excess-profits taxes that might be found due from the transferors and be seasonably and properly assessed or in respect of which a deficiency notice might be duly mailed by the respondent pursuant to the statute. If the waivers are in proper form and valid, subdivision (1) of section 280 does not bar assessment. See .
The respondent asserts that the statute of limitations does not apply to the Mutual Oil Company of Arizona, the Mutual Refining and Producing Company and the Northwestern Oil Refining Company for the period from January*1916 1 to February 28, 1919, inclusive, because the Mutual Oil Company of Maine included their income in its consolidated return for the full calendar year of 1919, and contends likewise as to the Mutual Oil Company of Maine and its subsidiaries for the period from January 1 to March 15, 1920, because the Elk Basin Consolidated Petroleum Company included their income in its consolidated income-tax return for the entire year of 1920. In ; ; affd., ; ; affd., , and numerous other cases we have held that such a consolidated return filed in good faith and making a substantial revelation of the gross income and deductions of the constituent members of the group is the return of the constituent corporations of the consolidated group, as contemplated by the statute of limitations, although later they, or some of them, may be found not to be properly affiliated. The consolidated returns in the instant case revealed the gross and net income of each of the constituent members. *1917 The reasoning underlying the above decisions applies equally well to corporations which may be realigned in their affiliated relationship with other members of the group during the taxable year, as in the present case. Therefore, the filing of the consolidated returns by the Mutual Oil Company of Maine and the Elk Basin Consolidated Petroleum Company for the years 1919 and 1920, respectively, was a substantial compliance with the law and started the running of the limitation period against the subsidiary corporations named in such returns.
It becomes necessary to examine the waivers executed by the several corporations in order to ascertain which, if any, may avoid the *326 proposed deficiencies by reason of the invalidity of such waivers and the consequent operation of the statute of limitations.
The petitioner attacks specifically the waivers executed on October 27, 1926, and the respondent concedes that if such waivers are found to be invalid, the petitioner can not be held as transferee under section 280. But we must consider all waivers filed in this case, since they all have a vital bearing on our decision. The four corporations executing such waivers were dissolved*1918 in 1922, or prior thereto. The petitioner contends that the waivers dated October 27, 1926, were executed by persons without authority to perform such an act. That defect, if such it is, exists likewise in all other waivers.
We are afforded few facts relating to the dissolution of the Mutual Oil Company of Maine, the Mutual Refining and Producing Company, the Northwestern Oil Refining Company, and the Mutual Oil Company of Arizona, aside from the mere assertion that those corporations were dissolved. The stipulation of facts states only that A. Herning and H. P. Ferree who purported to sign such waivers as secretary of the said corporations were, at the time they signed such waivers, the persons authorized by law to execute them on behalf of the said corporations, "provided that any officer, director or stockholder of said corporations was authorized by law to execute said waivers on behalf of said corporations," and specifies that the petitioner does not concede the validity, competency, relevancy, or materiality of such waivers. On the agreed facts petitioner has made a prima facie showing that the statute of limitations bars respondent from action unless the consents were*1919 valid. Under the rulings of the Board in ; ; ; , the burden of proving the validity of the consents or waivers rests on the respondent. We perceive no reason why we should not assume that the corporations had complied with the provisions of the appropriate statutes governing dissolution nor have we reason to assume that a receiver or other officer was appointed by any proper tribunal to take charge of the affairs of the dissolved corporations, or that any authority to execute the waivers was granted to Herning and Ferree.
On March 15, 1920, the Mutual Oil Company of Maine assigned, transferred and released all its right, title and interest in and to all its property to the Elk Basin Consolidated Petroleum Company in exchange for 600,000 shares of stock of the latter company. The Mutual Oil Company of Maine dissolved on January 12, 1921. Section 81 of chapter 51 of the Revised Statutes of Maine, 1916, is as follows:
*327 Corporations, whose charters expire or are*1920 otherwise terminated, have a corporate existence for three years thereafter; to prosecute and defend suits; to settle and close their concerns; to dispose of their property; and to divide their capitals.
The Mutual Oil Company of Maine attempted to execute six waivers, all signed by H. P. Ferree, secretary. The earliest of these waivers bears date of March 14, 1925, more than three years after the dissolution of the corporation. Under the statute and supported by decisions in pertinent cases in the State courts of Maine ( ; ), it has been established that in the State of Maine corporate existence ceases absolutely for all purposes three years after dissolution. Therefore, the Mutual Oil Company of Maine passed out of existence on January 12, 1924. Hence, the waivers purporting to have been executed by that corporation thereafter are void and the liability of that corporation for income and excess-profits taxes can not be assessed or collected from the petitioner. *1921 ; .
The Mutual Refining and Producing Company was dissolved on January 12, 1921, and the Northwestern Oil Refining Company on August 7, 1922. Both are Wyoming corporations. Chapter 349 of the Wyoming Compiled Statutes (1920) relates to the dissolution of corporations and prescribes the procedure by which dissolution may be effected and the affairs of the dissolved corporations may be settled. Section 5441 is as follows:
Duties and powers of trustees on dissolution. Upon dissolution by expiration of its charter or otherwise, of any corporation now existing, or which hereafter may be formed, unless some other person or persons be appointed by the legislature or some court of competent jurisdiction, the board of trustees or directors of such corporation, or the managers of the corporate affairs, by whatever name known, acting last before the time of their dissolution, and the survivors of them, shall be the trustees of the creditors and stockholders of the corporation dissolved, and shall have full power to settle the affairs of the same, to sue for and collect the debts and moneys*1922 due the corporation, or to compound and settle the same as they may deem best; to have, hold, reserve, sell and dispose of property, real and personal, or every such corporation dissolved, to adjust and pay all the debts of the corporation dissolved, to divide the residue of the moneys and property belonging to the corporation dissolved, after payment of debts and the necessary and reasonable expenses, among the stockholders holding stock in such corporation, in proportion to the amount of stock of each stockholder paid up; all such trustees shall be jointly and severally liable to the creditors and stockholders of such corporation dissolved, to the extent of the property and effects which shall come into their hands and possession, or into the hands or possession of any of them.
The waivers executed by Herning were not signed by him in his capacity as a trustee of the creditors and stockholders of the dissolved corporations, but merely as the secretary of a defunct corporation. *328 There is no proof that any one had authority to act for the corporation in dissolution nor is this defect met by the stipulation that Herning and Ferree were the persons authorized by law to*1923 execute said waivers provided that any officer, director or stockholder of said corporation was authorized by law to execute said waivers on behalf of said corporation. Under circumstances quite similar to those existing in the case at bar, we held in , that a waiver signed by the vice president of that corporation was void in the absence of proof that its execution was authorized by the trustees in dissolution or that such officer had general or special authority to act for such trustees. In the present case there is no proof of the existence of trustees in dissolution or any acts on their part authorizing the execution of the waivers. Hence, we find that the assessment of any dificiencies against the two corporations (the Mutual Refining and Producing Company and Northwestern Oil Refining Company) was barred by the statute of limitations on January 1, 1927. See ; .
The petitioner asserts that the waivers executed by the Mutual Oil Company of Arizona on October 27, 1926 (Exhibits Nos. 2 and 6), were invalid by*1924 virtue of the dissolution of that company on January 23, 1922, and the consequent lack of authority of its former secretary, A. Herning, to execute an effective and binding waiver. All other waivers executed on behalf of the Mutual Oil Company of Arizona also were signed by A. Herning, secretary. The Mutual Oil Company of Arizona transferred its assets to the petitioner on December 31, 1921.
The laws of Arizona governing the dissolution of corporations are quite general. The pertinent portion of section 2107 of the Revised Statutes of Arizona (1913) relating to that subject is as follows:
* * * or whenever at any general or special meeting of the stockholders of any such corporation the holders of the majority of its outstanding stock represented or voting at any such meeting shall have directed the disposal of all corporate assets, or that the corporation be dissolved or that it cease to use or exercise its corporate franchises, or whenever the directors or officers or managing board of any such corporation being thereto authorized or directed by a majority of the outstanding stock thereof, representing or voting at any general or special meeting thereof, shall have disposed*1925 of all the corporate assets, or dissolved or attempted to dissolve or secure the dissolution of such corporation or shall have done or attempted to do any of the aforesaid, or when any such corporation shall have disposed of all its property and assets, then and in or on each, every or any one of the foregoing causes, situations, provisions or conditions, either the attorney general of the state, or any resident thereof, or any such corporation, or any stockholder or officer of any such corporation, may bring, prosecute and maintain (either in the name of the attorney general, or in his own name) an action in any court of record of this *329 state, to have and procure a judicial dissolution and disincorporation of all rights, privileges, and franchises; and whenever it is made to appear to any such court by petition or complaint of any of the aforesaid parties, that any one of the above named causes, provisions, situations or conditions exists in respect to such corporation, such court shall forthwith order or cite such corporation to appear before it (service of such order may be made upon the corporation either personally or upon the corporation commission) and if, upon hearing*1926 or trial, it be made to appear that any one of said causes, conditions, situations or provisions exists, such court shall thereupon dissolve and disincorporate such corporation and forfeit and annul each and every of its rights and privileges, and franchises.
Section 2108 of the said statutes is as follows:
Corporations whose charters expire by their own limitations or by the voluntary act of the stockholders may, nevertheless, continue to act for the purpose of closing up the business of such corporation, but for no other purpose unless renewed as in their charters provided.
In , it was held that:
Where a corporation ceases to do business, all implied powers in its officers to bind it by incurring new obligations are at an end. The president may without special authority from the board of directors, perform all acts of an ordinary nature, which by usage or necessity are incident to his office, and bind the corporation by contracts made in the usual course of its business; but when the corporation retires from business this authority ceases to exist.
The general proposition may be laid down*1927 that in the absence of statute a legislature may bind a trustee in conformity with its own or with equitable rules, and that in the absence of statute and legislative appointment a court of equity, which never allows a trust to fail for want of a trustee, will itself make the appointment. 14 Corpus Juris, par. 3838-3.
As we have pointed out above, the burden is on the respondent to prove that the agreement which he alleges and upon which he relies as extending the period for assessment was validly executed. Therefore, the question being raised, the respondent must show that Herning was duly and properly authorized to execute the waivers on behalf of a dissolved corporation. In our opinion no such authority is shown to have existed in this case. The letter of the respondent dated March 15, 1927, recites the fact of the dissolution of the Mutual Oil Company of Arizona on January 23, 1922. Necessarily the respondent must have had knowledge of that fact some time prior to the issuance of his letter. The record discloses no activities of the corporation of any kind subsequent to its dissolution on January 23, 1922. If an assumption were to be made it would be that even under the*1928 permission of section 2108 of the Statutes of Arizona the corporation engaged in no activities since, under the procedure established by the statutes of that State, the final decree of January 23, 1922, effected a complete dissolution of the corporation.
*330 The facts in the case at bar are to be distinguished from those in , in which we held that the consents executed by C. D. Jaffee as treasurer of Schwartz and Jaffee, Inc., were sufficient to extend the statute of limitations for the assessment and collection of taxes against that corporation. In that case the laws of the State of New York provide specifically that the board of directors of the dissolved corporation shall proceed to adjust and wind up its business and affairs. The evidence there showed that the corporation was in the process of being liquidated by such directors, at least up until the time the waivers were signed, and that the officer signing such waivers was an officer of the corporation prior to dissolution and became one of the directors in liquidation. No such facts appear in this case and under the situation as above set forth we are of the opinion*1929 that the waivers signed by A. Herning in behalf of the Mutual Oil Company of Arizona are not valid and do not serve to extend the statutory period. Therefore, the statute of limitations relating to the assessment of additional tax against the Mutual Oil Company of Arizona became operative on March 16, 1926.
Upon further examining the waivers executed on behalf of the Mutual Oil Company of Arizona and the Mutual Refining and Producing ducing Company, we observe that for the period from March 1 to December 31, 1919, no waiver was filed until March 2, 1926. The waiver dated January 27, 1925, relating to the entire year 1919 extended the period only to December 31, 1925. Therefore, during the period from January 1 to March 2, 1926, there was no instrument in existence which served or purported to extend the statutory period of limitation as to the year 1919. The Revenue Act of 1926 was approved February 26, 1926. Therefore, the liability of the Mutual Oil Company of Arizona and the Mutual Refining and Producing Company for the payment of any tax that might be assessed against them for the period from March 1, 1919, to December 31, 1919, was extinguished and was not revived by the*1930 execution of the waiver of March 2, 1926. The liability of the petitioner as transferee was also extinguished with the liability of the alleged transferor taxpayers. .
Although the Mutual Oil Company of Arizona, the Mutual Refining and Producing Company, the Northwestern Oil Refining Company and the Mutual Oil Company of Maine purported to have executed waivers for the period from January 1 to March 15, 1920, and the respondent concedes that the waivers executed on October 27, 1926, covering that period control his right to assess under section 280, an entirely different situation exists as to the applicability of the statute of limitations to that period. On or about March 15, 1921, the Elk Basin Consolidated Petroleum Company *331 filed a consolidated return of income for the calendar year 1920 for itself as parent and the Mutual Oil Company of Maine, the Mutual Oil Company of Arizona, the Mutual Refining and Producing Company, and the Northwestern Oil Refining Company as subsidiaries. The respondent determined that a consolidation existed from January 1, 1920, to March 15, 1920, with the Mutual Oil Company of Maine as*1931 parent and the Mutual Oil Company of Arizona, Mutual Refining and Producing Company and the Northwestern Oil Refining Company as subsidiaries and that a new consolidation had been effected for the period from March 15, 1920, to December 31, 1920, with the Elk Basin Consolidated Petroleum Company as parent and the Mutual Oil Company of Maine, the Mutual Oil Company of Arizona, Mutual Refining and Producing Company, and the Northwestern Oil Refining Company as subsidiaries.
As to the Mutual Oil Company of Maine and its subsidiaries, the statute of limitations, applicable to the period from January 1, 1920, to March 15, 1920, expired on March 15, 1926, after the passage of the Revenue Act of 1926. Under the provisions of section 280, and consonant with previous decisions of this Board, the statute was not operative in the case of a transferee of those corporations until March 16, 1927. ( , and )
On March 15, 1927, the respondent mailed a notice of transferee liability to the petitioner, the Continental Oil Company (formerly the Elk Basin Consolidated Petroleum Company) as set forth in the findings*1932 of fact. In that letter the respondent proposed to assess the petitioner "as a transferee of the assets of the Mutual Oil Company of Maine, the Mutual Oil Company of Arizona, the Mutual Refining and Producing Company, and the Northwestern Oil Refining Company for income and profits taxes due from them for the periods March 1, 1919 to December 31, 1919 and January 1, 1920 to March 15, 1920." He inclosed a statement which obviously was to form the basis and explanation of his action. Otherwise it would have been impossible for the petitioner to "acquiesce in a part of the determination" and execute a waiver "with respect to the items" to which he agreed as set forth in the last paragraph of the letter. The statement was captioned: "STATEMENT OF RETURNS EXAMINED AND RESULTING TAX LIABILITY." It listed as the returns examined those of the Mutual Oil Company of Maine, the Mutual Oil Company of Arizona, the Mutual Refining and Producing Company and the Northwestern Oil Refining Company for the year 1919 and stated that "for the year 1920 all of the above companies were included in the calendar year return filed by the Elk Basin Consolidated Petroleum Company." Under the heading "Tax Liability" *1933 the respondent asserted as follows:
| Transferor | Year | Deficiency |
| Mutual Oil Company of Maine | 1919 | $20,648.17 |
| Mutual Oil Company of Maine | 1920 | 56,113.14 |
| Total | 76,761.31 |
*332 and under the heading "Tax liability under section 280 of the Revenue Act of 1926" he asserted as follows:
| Transferee | Year | Deficiency |
| Continental Oil Company | 1919 | $20,648.17 |
| Continental Oil Company | 1920 | 56,113.14 |
| Total | 76,761.31 |
A similar situation exists as to the period from January 1, 1919, to February 28, 1919, covered by the second notice of transferee liability, with the exception that the respondent asserted that the Mutual Oil Company of Arizona was the transferor. Inasmuch as the Mutual Oil Company of Maine was determined by the respondent to be the parent company from March 1, 1919, to March 15, 1920, and the Mutual Oil Company of Arizona the parent company from January 1, 1919, to February 28, 1919, he has designated such parent companies to be the transferors under section 280. Section 240(a) of the Revenue Act of 1918 provides that:
In any case in which a tax is assessed upon the basis of a consolidated return, the total tax*1934 shall be computed in the first instance as a unit and shall then be assessed upon the respective affiliated corporations in such proportion as may be agreed upon among them, or, in the absence of any such agreement, then on the basis of the net income properly assignable to each.
In proceeding under the above provision the Commissioner shall assess on the basis of net income assignable to each unless there be an agreement among the affiliated corporations that the assessment be made on some other basis. Here the respondent has determined the liability of the transferee as though there were an agreement that the entire tax should be assessed against the parent corporation. The respondent, apparently relying on such an agreement, must prove its existence. Cf. ; . No evidence was presented to establish this fact. From the stipulated facts it appears that the Mutual Oil Company of Maine suffered an actual loss of $8,255.02 for the period from January 1, 1920, to March 15, 1920. Hence there was no tax liability against the Mutual Oil Company of Maine*1935 for which, as transferee, the petitioner could be liable.
*333 The provisions of section 280 constitute an extraordinary method of collection the taxes of the person who is primarily liable therefor, and consequently they must be construed strictly against the respondent. When he attempts to make an alleged transferee liable for the taxes of another, his deficiency letter must show clearly and unmistakably the transferor whose taxes the transferee will ultimately pay. The respondent's deficiency letter of March 15, 1927, relating to the period from January 1, 1920, to March 15, 1920, failed to do this.
No assessments for the period January 1, 1920, to March 15, 1920, were made by the respondent other than those he made upon the filing of the original return on March 15, 1921. By his letter of March 15, 1927, he sought to charge the Mutual Oil Company of Maine with $56,113.14 in taxes and proposed to assess that amount against the petitioner as transferee of the Mutual Oil Company of Maine. As we have indicated heretofore, such a procedure is unwarranted and the petitioner is under no liability at law or in equity as the transferee of the assets of the Mutual Oil Company*1936 of Maine by reason of a deficiency in tax due from it for the period from January 1, 1920, to March 15, 1920. We do not discuss the question whether or not the transfer of the Mutual Oil Company of Maine to the petitioner was for a valuable consideration since such a question becomes unnecessary to consider under our decision here made.
Reviewed by the Board.
Judgment will be entered for the petitioner.
BLACK, dissenting: I dissent from the views of the majority opinion wherein it is held that the statute of limitations bars the assessment and collection of the taxes due by the Mutual Refining and Producing Company and the Northwestern Oil Refining Company.
Both of these corporations were Wyoming corporations. Mutual Refining and Producing Company was dissolved January 12, 1921, and Northwestern Refining and Producing Company was dissolved April 7, 1922.
Section 5441, Wyoming Compiled Statutes, prescribes how the affairs of a dissolved Wyoming corporation shall be wound up, and has been fully cited in the majority opinion. Under this statute, it is specifically provided that, "Unless the legislature or some court of competent jurisdiction shall*1937 appoint some other person or persons to wind up the affairs of a dissolved corporation, the Board of Trustees or Directors of the corporation or the managers of the corporate affairs, by whatever name known, acting last before the time of their dissolution shall be the trustees of the creditors and stockholders *334 of the corporation dissolved and shall have power to settle the affairs of the same, etc." (Italics supplied.)
The waivers of the two Wyoming corporations in question were signed by the respective corporations by A. Herning, as secretary, under the seals of the respective corporations. It has been stipulated by the parties that "A. Herning," by whom the above mentioned waivers were signed as secretary of said corporations, "was at the time he signed said waivers the person authorized by law to execute said waivers on behalf of the said corporation, provided that any officer, director or stockholder of said corporation was authorized by law to execute said waivers on behalf of said corporations."
It seems to me that the above cited stipulation is conclusive as to the validity of the waivers.
*1938 The statute of Wyoming clearly authorizing the managers of the corporate affairs, by whatever name known, acting last before the dissolution, to wind up the affairs of the corporation, and it having been stipulated that if any officer of the corporation had such authority, Herning, secretary, was the one, it seems to me there is no room for doubt as to his authority to sign the waivers, ; affd., . The court in Charles D. Jaffee, supra, in affirming the decision of this Board and upholding the waivers signed by Charles D. Jaffee, as treasurer of the dissolved corporation, but where evidence was lacking of any specific authority from the board of directors of the dissolved corporation to Charles D. Jaffee, to sign said waivers, said:
* * * After Jaffee signed these waivers the liquidating agents affixed the corporate seal to them. They acquiesced in what he had done without protest or objection. The corporation got whatever benefit might result from a more careful audit by the bureau and the corporation, together with its board of directors, received whatever advantage was thereby to be gained. When*1939 the first waiver was signed the government gave up the right it then had to assess the 1919 taxes within the statutory period and when the last waivers were signed it gave up the right it then had to assess the 1919 taxes within the statutory period and when the last waivers were signed it gave up the right it then had to assess the 1920 taxes before the limitation of the statute had run. The board of directors could not, as it did, turn over its tax matters to agents authorized to handle them and by shutting its eyes avoid the consequences of what the agent did, learned or acquiesced in within the scope of its authority.
Beyond question an agent duly authorized to handle federal tax matters was authorized to execute waivers in furtherance of such business (compare ) and notice to it that Charles D. Jaffee had executed the waivers was shown when it appeared that after he signed them the waivers were sent to the tax agents who had the corporate seal and attached it to them. Under such circumstances, of course, notice to the agents was notice to the principal. Jefferson County National Bank v. Dewey et al,*1940 ; ; ; and the signing of these waivers by Jaffee was not *335 only thus acquiesced in (see ) by the board of directors through its agent but the agents actually participated in the execution of which his signing was a part. The waivers are as valid as though executed by the board of directors.
In view of the above cited authority, I think the holding of the majority opinion in the instant case, to the effect that the waivers signed by A. Herning, secretary of the two Wyoming corporations, are invalid, is wrong. In my judgment the waivers signed for and on behalf of the two Wyoming corporations were valid and the statute of limitations has not tolled as to these two corporations.
SMITH, ARUNDELL, and MURDOCK agree with this dissent.