*2429 The petitioners held liable as transferees of the assets of the Union Finance Co. for the taxes due from that company for the years 1921 and 1922.
*305 These proceedings, which were duly consolidated for hearing and decision, are for the determination of liabilities in income and profits taxes claimed by the respondent to be due from the Union Finance Co. in the amounts of $6,295.21 for the year 1921 and $6,951.11 for the year 1922. The respondent, proceeding under the authority of section 280 of the Revenue Act of 1926, has asserted said taxes against the petitioners as transferees of the Union Finance Co. as follows:
| B. F. Fairless | $5,000 |
| Milton Shaeffer | 5,000 |
| J. D. Donovan | 1,500 |
| Elton Rice | 1,500 |
| Emma C. Jacobs | $1,500 |
| L. A. Buchman | 1,500 |
| Chas. A. LaMont | 1,500 |
| W. C. Laiblin | 1,500 |
FINDINGS OF FACT.
The petitioners B. F. Fairless, J. D. Donovan, Elton Rice, Emma C. Jacobs, L. A. Buchman and Charles A. LaMont, are individuals residing in the State of Ohio. The petitioner Howard T. *2430 Shaeffer is the executor of the last will and testament, and the petitioner Paul H. Shaeffer is the administrator, with the will annexed, of the estate of Milton Shaeffer, deceased. The petitioner George D. Harter Bank of Canton, Ohio, is the executor of the last will and testament of W. C. Laiblin, deceased.
During the years 1921 and 1922 the said B. F. Fairless, J. D. Donovan, Elton Rice, Emma C. Jacobs, L. A. Buchman, Charles A. LaMont, Milton Shaeffer, and W. C. Laiblin, were stockholders of the Union Finance Co., an Ohio corporation engaged in financing manufacturers and jobbers.
In the latter part of the year 1922 the Union Finance Co. entered into negotiations with the Metropolitan Securities Co., an Ohio corporation engaged in business at Cleveland, Ohio, for the sale of its assets to the latter company. As a result of the negotiations the Union Finance Co. agreed to sell all of its assets, subject to the liabilities existing at the date of transfer as shown by its books, to the Metropolitan Securities Co. for 5,886 shares of the preferred stock of the Metropolitan Securities Co. The sale was consummated on January 4, 1923, by a bill of sale of that date which is in*2431 the words and figures following:
BILL OF SALE.
THE UNION FINANCE COMPANY TO THE METROPOLITAN SECURITIES COMPANY.
The Union Finance Company, a corporation duly organized and existing under and by virtue of the laws of the State of Ohio, by its President and *306 Secretary, thereunto duly authorized by a Resolution adopted at a special meeting of the stockholders of the said Company held on December 4, 1922, for and in consideration of the sum of Ten Dollars ($10.00) and other valuaable considerations paid to it by The Metropolitan Securities Company, receipt whereof is hereby acknowledged, does hereby grant, bargain, sell, transfer and deliver unto the said The Metropolitan Securities Company, its successors and assigns, the following described property now owned by it, to-wit: all furniture, books and other movable property now used in connection with its business in its office No. 1540 Hanna Building, Cleveland, Ohio, all rights, credits, accounts receivable, bills receivable, notes receivable, and all claims demands and other choses in action, whatever, all securities or other evidences of indebtedness, all moneys on hand or on deposit in bank, and all property and*2432 assets of every kind and nature which the said The Union Finance Company owns and has the right to convey, subject only to such accounts payable or other obligations owing by The Union Finance Company on the date of this instrument, as shown by its books, which obligations The Metropolitan Securities Company hereby assumes and agrees to pay.
To have and to hold the said described property unto the said The Metropolitan Securities Company, its successors and assigns forever. And the said The Union Finance Company hereby covenants and agrees with the said The Metropolitan Securities Company, its successors and assigns, forever. And the said The Union Finance Company hereby covenants and agrees with the said The Metropolitan Securities Company, its successors and assigns, that the said The Union Finance Company is the lawful owner of all of the property intended to be conveyed by this instrument, that it has good right to sell the same, that the same is free and clear of all encumbrances whatever, and that the said Union Finance Company will warrant and defend the same against all lawful claims and demands whatever.
In witness whereof the name of the said The Union Finance Company*2433 is hereunto subscribed and incorporate seal hereunto affixed by its president and secretary at Cleveland, Ohio, this 4th day of January, 1923.
THE UNION FINANCE COMPANY,
By PAUL GUNDLING, President.
I. A. STERNHEIMER, Secretary.
Signed, sealed and delivered in the presence of -
L. H. CLOSE. H. MAPES.The Metropolitan Securities Co. took over all of the property of the Union Finance Co. and issued to that company one certificate for 5,886 shares of the preferred stock of the Metropolitan Securities Co. On January 18, 1923, this stock certificate was turned over to the Guardian Trust Co. of Cleveland, which was the transfer agent of the Metropolitan Securities Co., with instructions to issue certificates of Metropolitan Securities Co. stock to the stockholders of the Union Finance Co., share for share, upon the surrender by the stockholders of the Union Finance Co. of their certificates of stock in that company. Pursuant to said instructions the Guardian Trust Co. of Cleveland distributed to the stockholders of the Union Finance Co. said 5,886 shares of the preferred stock of the Metropolitan Securities Co. and said stockholders surrendered their shares *307 *2434 of the capital stock of the Union Finance Co. In said distribution the petitioners received shares of the preferred stock of the Metropolitan Securities Co. as follows:
| Name | Shares | Par value |
| B. F. Fairless | 110 | $11,000 |
| Milton Shaeffer | 150 | 15,000 |
| J. D. Donovan | 50 | 5,000 |
| Elton Rice | 70 | 7,000 |
| Emma C. Jacobs | 50 | $5,000 |
| L. A. Buchman | 50 | 5,000 |
| Charles A. LaMont | 75 | 7,500 |
| W. C. Laiblin | 50 | 5,000 |
The value of the assets transferred by the Union Finance Co. to the Metropolitan Securities Co. was about $500,000. The preferred stock of the Metropolitan Securities Co. issued to the Union Finance Co. and distributed to its stockholders had an actual value of $100 per share.
Immediately upon the transfer of its assets to the Metropolitan Securities Co., the Union Finance Co. ceased to carry on any business and its books were never closed for the year 1922. On February 14, 1925, the charter of the Union Finance Co. was canceled for nonpayment of taxes.
The Union Finance Co. filed returns of income for the years 1921 and 1922. On its return for 1922 it reported a net loss of $156,754.89. In computing said net loss it deducted, among others things, *2435 the amount of $62,484.14 as "Bad Debts (From Schedule G)." In a written statement attached to and made a part of the return the following explanation is made of said amount of $62,484.14:
SCHEDULE G.
The following are bad debts not charged off in 1922 and are included in balance sheet.
* * *
The foregoing debtors are bankrupt & discharged by the court.
Said debts were included in the assets transferred by the petitioner to the Metropolitan Securities Co. on January 4, 1923.
The respondent, upon audit of the returns of the Union Finance Co. for the years 1921 and 1922, disallowed said deduction of $62,484.14; made other adjustments in income not material here, and determined that there are deficiencies in tax in the amount of $6,295.21 for the year 1921, and $6,951.11 for the year 1922. The respondent subsequently asserted liabilities against the petitioners as transferees of the Union Finance Co. in the amounts above set forth.
OPINION.
MARQUETTE: The petitioners challenge the determination of the respondent on five grounds: (1) That section 280 of the Revenue *308 Act of 1926 is unconstitutional; (2) that they are not transferees of the Union Finance*2436 Co. within the meaning of section 280 of the Revenue Act of 1926; (3) that they are not liable as transferees because the record does not show that the respondent has exhausted his remedies against the Union Finance Co.; (4) that there is no deficiency in tax for the year 1922 on the part of the Union Finance Co., and (5) that the Metropolitan Securities Corporation is primarily liable for all unpaid taxes of the Union Finance Co. The issues will be discussed in the order in which they are stated.
While the petitioners raise the question of the validity of section 280 of the Revenue Act of 1926, at the hearing they declined to argue or press it in view of the decision of this Board in , in which it was held that a taxpayer may not seek a redetermination by the Board under section 280 of the Revenue Act of 1926 and at the same time question its validity. That is what the petitioners have done in these proceedings, and on the authority of the Cappellini case we hold that the petitioners, having appealed to the Board from the determination of the respondent, have waived the right to attack the constitutionality of the law under*2437 which the appeal is taken.
We are unable to perceive any merit in the petitioners' contention that they are not transferees of the Union Finance Co. The evidence clearly establishes the contrary. It shows that after the transaction between the Union Finance Co. and the Metropolitan Securities Co., the Union Finance Co. was possessed of assets, consisting of shares of the preferred stock of the Metropolitan Securities Co., of the value of more than $500,000, and that these assets were distributed among the petitioners and the other stockholders of the Union Finance Co. in liquidation of that corporation. It is, therefore, clear, that the petitioners are transferees of the Union Finance Co. and that they are severally liable for the unpaid taxes of that corporation to the amount of the taxes or the value of the assets received in liquidation, whichever is lesser. ; .
The third contention of the petitioners is that the respondent is required to proceed against the Union Finance Co. for collection of the taxes due from it and to exhaust his remedies against*2438 that company before he can proceed against the petitioners as transferees. In support of their contention they cite . In that case the transferor was still in existence and there was nothing in the record to show that it did not have assets to pay the tax, and we do not consider the decision therein applicable here.
*309 The evidence in this case establishes that the Union Finance. Co. liquidated its assets in 1923 and that its charter was forfeited in February, 1925. From early in 1923 it was only a shell without assets or capital stock, and upon the forfeiture of its charter it ceased to exist; and it may be assumed that the respondent was aware of that situation when he mailed the deficiency letters on March 8, 1925, and subsequent thereto. We do not believe that under the circumstances the respondent was required to institute proceedings against the transferor, which would obviously be useless and futile, before he could proceed against the petitioners. It is sufficient that he has proceeded against the transferees within the time prescribed by the statute therefor. *2439 ; .
The petitioners also urge that the respondent erred in disallowing a deduction of $262,484.14 taken by the Union Finance Co. in computing its net income for 1922 on account of debts claimed to have become worthless in that year. They say that the deduction should have been allowed and that the Union Finance Co. had no taxable income for the year 1922. The respondent having disallowed the deduction, the burden of showing that it was proper and should have been allowed is upon the petitioners. While it is clear that the books of the Union Finance Co. were not closed at the end of the year 1922, and that there was no formal charge-off on the books of the debts in question, we are not disposed to quibble over that omission in view of the fact that the debts were deducted on the return. . But we are not satisfied from the evidence that the debts actually became worthless in 1922. Furthermore, they were among the assets transferred by the petitioners to the Metropolitan Securities Co. on January 4, 1923. On this point the*2440 respondent's determination is approved.
The last contention of the petitioners is that the Metropolitan Securities Corporation is primarily liable for the taxes involved herein and for that reason the redetermination of the liabilities of the petitioners should be held in abeyance until the Board has decided whether the deficiencies have been or can be collected from the Metropolitan Securities Corporation. We have this day decided in the case of the Metropolitan Securities Corporation, that the Metropolitan Securities Co., which acquired the assets of the Union Finance Co., is not liable for the taxes involved herein. That decision disposes of the fifth contention of the petitioners.
The record herein establishes that the petitioners are transferees of the Union Finance Co. and that each of them received on the liquidation of that company assets of a value in excess of the amount of *310 the deficiency the respondent proposes to assert against him as such transferee. The determination of the respondent must, therefore, be sustained.
Reviewed by the BOARD.
Judgment will be entered for the respondent.