*3596 The liability of transferees of partnership property with respect to an assessed and unpaid deficiency in income tax of one of the partners which may be assessed against such transferees under the provisions of section 280, Revenue Act of 1926, determined.
*124 This proceeding is for the redetermination of the liability which may be assessed against the petitioners, as transferees, under the provisions of section 280 of the Revenue Act of 1926. The respondent asserts that the petitioners are liable, as transferees of the assets of the estate of Robert Whittaker, for unpaid income tax, amounting to $1,954.92 for the calendar year 1919, which was assessed against Robert Whittaker. The petitioners allege that the respondent erred in determining that they were transferees of property of a taxpayer and that the collection of the tax assessed is barred by operation of the statute of limitations.
FINDINGS OF FACT.
The petitioners constitute a committee which was formed to protect the interests of the creditors of Whittaker & Bacon, a partnership. This*3597 partnership was composed of Robert Whittaker and William R. Bacon, copartners, doing business at Boston and Northboro, Mass., and elsewhere, under the firm name and style of Whittaker & Bacon. Both partners are now dead.
In 1921 a corporation, known as Whittaker & Bacon, Inc., was formed and on August 3, 1921, the partnership transferred to it all of the partnership assets. The agreement authorizing the transfer reads as follows:
An agreement made this third day of August, 1921, by and between Robert Whittaker and William R. Bacon, copartners carrying on business at Boston and Northborough, Massachusetts and elsewhere under the firm name and style of Whittakewr & Bacon (hereinafter called the Partners) of the one part and Whittaker & Bacon Incorporated, a Massachusetts corporation, (hereinafter called the Corporation) of the other part.
The Partners have offered to sell and convey to the Corporation all the real estate and all the business and other property and assets of the said partnership *125 of Whittaker & Bacon and to accept in full payment therefor one hundred (100) full paid and non-assessable shares without par value in the capital stock of*3598 the Corporation and the agreement of the Corporation to assume and pay all the now existing partnership debts and liabilities of the said partnership, all as more particularly specified in the said offer to which reference is hereby made. The Corporation has accepted the said offer and this agreement is made in pursuance of the offer so made and accepted.
Now, therefore, in consideration of the premises and of the mutual promises herein contained it is hereby agreed and declared as follows:
1. The Partners, in consideration of the premises and of the agreements hereinafter contained to be performed by the Corporation, do hereby sell, convey, transfer, assign and set over unto the Corporation all the real estate, business, property and assets of the said partnership, including its good will, and also, without restricting the generality of the foregoing, all its plant, machinery, merchandise, stock-in-trade, cash on hand and in bank, bills and accounts receivable, bonds, notes, claims, demands, rights, equities, contracts, choses in action, trade names, trade-marks, patents, patent rights, licenses and privileges, and all other property, tanbgible and intangible, of every*3599 description and wherever situated, owned by the said partnership.
TO HAVE AND TO HOLD the same, with all the privileges and appurtenances thereto belonging, to the Corporation, its successors and assigns forever.
2. The Partners hereby jointly and severally constitute and appoint the Corporation, its successors and assigns, the true and lawful attorney and attorneys irrevocable of the Partners; in their name or in the name of either of the Partners but at the expense and for the benefit of the Corporation, to demand and receive any and all the business property and assets hereby transferred and assigned, or intended so to be, and to give receipts and releases therefor or in respect of the same or any part thereof, and to institute and prosecute in the name of the Partners or of either of them but for the benefit of the Corporation any and all proceedings at law, in equity or otherwise to collect or enforce any claim, or right hereby transferred and assigned, or intended to be, and to defend and compromise any and all actions, suits or proceedings against the Partners or in respect of any of the property or assets hereby transferred and assigned, or intended so to be, and to*3600 all acts and things in respect of said property and assets which the Corporation deems desirable, but without expense to the Partners.
3. And the Partners jointly and severally hereby covenant with the Corporation at the expense of the Corporation to do, execute, acknowledge and deliver all such acts, deeds, assignments and other instruments in writing for the better assuring, conveying and confirming unto the Corporation, its successors and assigns, all and singular the property and assets hereby transferred and assigned, or intended so to be, as the Corporation shall reasonably require.
4. In consideration of the premises the Corporation hereby assumes and agrees to pay all the now existing partnership debts and liabilities of the said partnership.
5. This agreement shall bind and inure to the benefit of the parties hereto and their respective heirs, executors, administrators, successors and assigns.
IN WITNESS WHEREOF the said Robert Whittaker and William R. Bacon, co-partners as aforesaid, have hereunto set their hands and seals and the said Whittaker & Bacon Incorporated has caused its corporate seal to be *126 hereto affixed and these presents*3601 to be executed and delivered in its name by its president and its treasurer hereunto duly authorized the day and year first above written. Executed in duplicate.
ROBERT WHITTAKER,
(SEAL)
WM. R. BACON,Co-partners doing business under the firm name and style of Whittaker & Bacon.
WHITTAKER & BACON INCORPORATED,
By ROBERT WHITTAKER, President.
WM. R. BACON, Treasurer.
The total amount of capital stock issued by the corporation was 100 shares. All of this stock was without par value and was issued to the partnership in the form of two certificates of 50 shares each. Each certificate bore on its face the following:
This certifies that Robert Whittaker and William R. Bacon, co-partners, carrying on business under the firm name and style of Whittaker & Bacon, is the owner of fifty fully paid shares, without par value, of the capital stock of Whittaker & Bacon, Incorporated.
Thereafter, on December 22, 1921, the partnership transferred the 100 shares of stock to the petitioners in accordance with the following agreement:
AN AGREEMENT, made this 22nd day of December, 1921, by and between A. Howard Graves, Henry D. Campbell and Melville C. Hall,*3602 as the Committee under a certain Creditors' Agreement dated July 22, 1921, and relating to the firm of Whittaker & Bacon, but not individually (hereinafter called the Committee), of the one part, and Robert Whittaker and William R. Bacon, co-partners doing business at Boston and Northboro, Massachusetts, and elsewhere under the firm name and style of Whittaker & Bacon (hereinafter called the Partners), of the other part.
The Partners have sold and conveyed to Whittaker & Bacon Incorporated, a Massachusetts corporation (hereinafter called the Corporation), all the business, property and assets of the partnership of Whittaker & Bacon, and have received as part of the consideration therefor one hundred (100) full paid and non-assessable shares without par value in the capital stock of the Corporation; and the Corporation has assumed and agreed to pay as of August 3, 1921, all the then existing debts and liabilities of the partnership. The Partners are about to transfer the said shares to the Committee and together therewith the management so far as the Committee may deem desirable of the business property and affairs of the Corporation.
Now, THEREFORE, in consideration*3603 of the premises and of the mutual promises herein contained it is hereby agreed and declared as follows: -
1. The Partners hereby agree to transfer to the Committee or its nominee or nominees the said one hundred (100) full paid and non-assessable shares without par value in the capital stock of the Corporation.
2. The Committee, or their nominee or nominees, may conduct and manage the business, property and affairs of the Corporation in such manner as they may deem proper and for the best interests of the "Depositors" under the said Creditors' Agreement, and may cause or permit all or any of the members of the Committee, or their nominee or nominees, or any other person or persons to become and act as directors and/or officers of the Corporation and may generally *127 act or cause any other persons to act with reference to the Corporation and its business, property and affairs as though the Committee were the absolute owners of the said shares; and the Committee may cause the Corporation to be liquidated if in their discretion they shall deem it for the best interest of the "Depositors" under the said Creditors' Agreement; and the Committee may in their discretion pledge, *3604 sell, or otherwise dispose of all or any of the said shares for the purpose of meeting obligations of the Committee or of the said partnership of Whittaker & Bacon or otherwise carrying out the purposes of the said Creditors' Agreement; provided, however, that in event of a proposed sale of any of the said shares of stock, the Committee shall give notice in writing to the Partners stating the price and terms on which it is proposed to sell, and the Partners shall have the right, within fifteen days of the receipt of said notice, to purchase said shares on terms and at a price not less favorable than the terms and price of the proposed sale.
3. When the Corporation shall have paid in full, with interest, at the legal rate unless otherwise specified, to the date of payment all the debts, obligations and liabilities of the said partnership and/or of the Corporation outstanding at the date hereof and due to present and/or future "Depositors" under the said Creditors' Agreement and all the remuneration, expenses, charges and liabilities of the Committee, the Committee shall transfer the said shares to the Partners, their nominee or nominees, provided that the said shares shall not*3605 have been theretofore pledged, sold or otherwise disposed of. In case the said partnership shall be adjudged bankrupt within four months from the date hereof or in case receivers for the estate of the said partnership shall be appointed by any court of competent jurisdiction the Committee may transfer the said shares to the trustee or trustees of the estate in bankruptcy or to the receiver or receivers so appointed.
4. The Committee are acting hereunder solely as a Committee under the said Creditors' Agreement, dated July 22, 1921, to which reference is hereby made for the powers of the Committee and no member of the Committee nor any nominee or person appointed or employed by the Committee shall have any personal or individual liability under or in respect of this agreement or in respect of any action of the Committee or of any member thereof or of any such nominee or in the management of the business, property and affairs of the Corporation or the liquidation of the Corporation or otherwise in respect of the Corporation or its business, property or affairs.
5. This agreement shall bind and inure to the benefit of the parties hereto and their respective executors, administrators, *3606 successors and assigns.
IN WITNESS WHEREOF the said Robert Whittaker and William R. Bacon, Co-partners as aforesaid, and the Committee have hereto set their hands and seals the day and year first above written. Executed in duplicate.
WM. R. BACON (SEAL)ROBERT WHITTAKER (SEAL)
Co-partners doing business under the firm name and style of Whittaker & Bacon.
A. H. GRAVES (SEAL) H. D. CAMPBELL (SEAL)MELVILLE C. HALL (SEAL)
As the Committee as aforesaid but not individually.
The petitioners still hold the 100 shares of stock transferred to them in 1921. Nothing but the stock was ever transferred to them, nor do they hold anything in addition thereto. On November 19, *128 1926, the assets of the corporation consisted of an item of $2 called "Investments" and cash not in excess of $5,000. The petitioners had received a bill in the amount of $1,500 for legal services rendered to the partnership at the request of Bacon, which was made prior to the assignment to the corporation. This bill has not been conceded by the petitioners to be a proper bill and they have placed it in the hands of counsel for settlement. Liability for legal services rendered*3607 to the creditors' committee also remains unliquidated.
One of the partners, Robert Whittaker, filed his individual incometax return for the calendar year 1919 on March 15, 1920. Subsequent to the formation of Whittaker & Bacon, Inc., and the transfers of partnership assets to the corporation, the capital stock of the corporation to the partnership, and the assignment of such capital stock by the partnership to the petitioners, Robert Whittaker died. Thereafter, On October 18, 1923, a deficiency in tax amounting to $2,125.38 for the calendar year 1919 was assessed against the "Robert Whittaker Estate, Mrs. Anna T. Whittaker, Adm., Westboro, Mass."
OPINION.
SMITH: The issue in this proceeding is whether the sum of $1,954.92, representing an unpaid deficiency in the income tax of Robert Whittaker for the calendar year 1919, is a liability assessable against the petitioners under the provisions of section 280 of the Revenue Act of 1926, which reads 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*3608 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 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*3609 was made within such period, - then within six years after the making of such assment against the taxpayer, but in no case later than one year after the enactment of this Act.
*129 (3) If a court proceeding against the taxpayer for the collection of the tax has been begun within either of the above periods, - then within one year after the return of execution in such proceeding.
(c) For the purpose of this section, if the taxpayer is deceased, or in the case of a corporation, has terminated its existence, the period of limitation for assessment against the taxpayer shall be the period that would be in effect had the death or termination of existence not occurred.
(d) The running of the period of limitation upon the assessment of the liability of a transferee or fiduciary shall, after the mailing of the notice under subdivision (a) of section 274 to the transferee or fiduciary, be suspended for the period during which the Commissioner is prohibited from making the assessment in respect of the liability of the transferee or fiduciary, and for 60 days thereafter.
(e) This section shall not apply to any suit or other proceeding for the enforcement of the liability of*3610 a transferee or fiduciary pending at the time of the enactment of this Act.
(f) As used in this section, the term "transferee" includes heir, legatee, devisee, and distributee.
The petitioners claim (1) that collection of the tax is barred by operation of the statute of limitations; and (2) that section 280 has no application to the situation disclosed by the evidence.
Relative to the first point raised by the petitioners, it appears that the return of Robert Whittaker was filed on March 15, 1920, and that assessment of the deficiency was made on October 18, 1923, which date occurred prior to the passage of the Revenue Act of 1924. The five-year period for assessment, provided for by section 250(d) of the Revenue Act of 1921, expired with respect to the making of an assessment against Robert Whittaker for the year 1919 on March 15, 1925, which date occurred subsequent to the passage of the Revenue Act of 1924. We have heretofore held in , that where an assessment was made within the five-year period provided for by section 250(d) of the Revenue Act of 1921, prior to the passage of the Revenue Act of 1924 and such five-year period*3611 expired subsequent to the passage of the Revenue Act of 1924, the respondent had six years from the date of the assessment within which to bring a suit or other proceeding for the collection of such a tax. That decision is controlling here and collection of the deficiency in tax in the instant case is not barred. Nor is the assessment of the liability of a transferee of property of Robert Whittaker, with respect to such deficiency in tax, barred by the statute of limitations. It has been shown that the deficiency in tax was assessed against Whittaker's estate within the period prescribed by statute. The Revenue Act of 1926 was enacted February 26, 1926. The notice of proposed assessment of a liability was mailed to the petitioners on November 19, 1926, which date occurred both prior to the expiration of one year after the enactment of the Revenue Act of 1926 and *130 within six years after the assessment of the deficiency in tax. (Section 280(b)(2), Revenue Act of 1926.)
Counsel for the petitioners urge that the application of section 280 is limited to cases disclosing all of the following factors, namely, (1) the person against whom the assessment is made must be a*3612 transferee of property; (2) such property must have been the property of the taxpayer; (3) such property must have been received by such transferee under circumstances which, by operation of general principles of law or equity, will give rise to a money liability for which, under the provisions of law prior to the insertion of this section into the Act, a money judgment at law or a decree for the payment of money in equity could have been obtained against such transferee; (4) such liability must be a liability in favor of the United States; and (5) there must be an outstanding tax liability of the transferor at the time the assessment is made.
While it is admitted by petitioners that they are transferees of the property alleged to have been transferred to them, they claim that the transfer was not of the individual property of the taxpayer, Robert Whittaker, but consisted solely of property of the copartnership of Whittaker & Bacon, and it is submitted that while Whittaker, as one of the partners, may have an interest in the assets held by the petitioners for the partnership, the fact should be borne in mind that Bacon, the other partner, and the partnership creditors, including*3613 those creditors whose claims were made subsequent to the assignment to the corporation and which were, therefore, not assumed and paid by the corporation, have claims on the assets in the hands of the petitioners which are entitled to priority over the individual tax claim against Whittaker. .
In considering the nature of the transferee's liability under section 280 of the Revenue Act of 1926, the construction of the language employed, and reference to its legislative history both indicate that it imposes no new liability upon the transferee and that the nature and extent of his liability is to be determined by the settled principles of the common law and Federal and local statutes. In the report of the Senate Finance Committee on the Revenue Act of 1926, Committee Print January 22, 1926, page 30, it is stated, with reference to section 280:
It is the purpose of the Committee's amendment to provide for the enforcement of such liability to the Government by the procedure provided in the act for the enforcement of tax deficiencies. It is not proposed, however, to define or change existing liability. The section merely*3614 provides that if the liability of the transferee exists under other law then that liability is to be enforced according to the new procedure applicable to tax deficiencies.
Also in the report of the Conference Committee on the Revenue Act of 1926, dated February 22, 1926, page 43, it is stated:
*131 Without in any way changing the extent of such liability or the transferee under existing law, the amendment enforces such liability (whether in respect of the tax as originally returned by the taxpayer or a deficiency therein) in the same manner as liability for a tax deficiency is enforced; * * *
Therefore, in order to determine the applicability of the provisions of section 280 of the Revenue Act of 1926 to a given case, it is necessary to consider what the position of the United States with respect to the transferee would be under other law. By virtue of section 3184, Revised Statutes, the collector, within ten days after receiving a list of taxes from the Commissioner of Internal Revenue (assessment list), shall give notice to the person or persons liable, stating the amount due and demanding payment thereof. If any person liable to pay any tax neglects or refuses to*3615 pay the same after demand, the amount shall be a lien in favor of the United States from the time when the assessment list was received by the collector. Section 3186, Revised Statutes. This lien is very broad and attaches upon all property and rights to property belonging to the delinquent taxpayer. Section 3186, Revised Statutes. If any person liable to pay any taxes neglects or refuses to pay the same within ten days after notice and demand, then the collector, or his deputy, by warrant from him, is authorized to collect the taxes by distraint and sale, section 3187, Revised Statutes, and may, with certain exceptions, levy upon all property and rights to property of the delinquent taxpayer, or upon all property and rights to property on which the lien exists. Section 3188, Revised Statutes. When personal property sufficient to satisfy the taxes imposed is not found by the collector or deputy collector, he is authorized to collect the same by seizure and sale of real estate. Section 3196, Revised Statutes. However, before resort to the sale of real estate owned by delinquent taxpayers can be had, proceedings must be taken to recover the amount due to the United States from*3616 the distraint and sale of the chattels and personal effects of such delinquents.
The sections of the Revised Statutes above cited, however, provide for enforcement of the statutory tax lien by distraint and sale only, and while not only the property of the delinquent taxpayer but also property in the hands of transferees, which is subject to lien, may be seized and sold, such a proceeding is not a judicial proceeding. Subsequent to the enactment of legislation establishing the lien for taxes and providing for its enforcement by distraint and sale, Congress enacted legislation which became section 3207, Revised Statutes, reading as following:
In any case where there has been a refusal or neglect to pay any tax, and it has become necessary to seize and sell real estate to satisfy the same, the Commisisoner of Internal Revenue may direct a bill in chancery to be filed. in a district (or circuit) court of the United States, to enforce the lien of the United States for tax upon any real estate, or to subject any real estate *132 owned by the delinquent, or in which he has any right, title, or interest, to the payment of such tax. All persons having liens upon or claiming*3617 any interest in the real estate sought to be subjected as aforesaid, shall be made parties to such proceedings, and be brought into court as provided in other suits in chancery therein. And the said court shall, at the term next after the parties have been duly notified of the proceedings, unless otherwise ordered by the court, proceed to adjudicate all matters involved therein, and finally determine the merits of all claims to and liens upon the real estate in question, and, in all cases where a claim or interest of the United States therein is established, shall decree a sale of such real estate, by the proper officer of the court, and a distribution of the proceeds of such sale according to the findings of the court in respect to the interests of the parties and of the United States.
Section 3207, Revised Statutes, was amended by the Revenue Act of 1924, but it is not necessary for our purposes to consider that amendment.
That the new remedy enacted as section 3207, Revised Statutes, has not superseded the remedy by distraint and sale and is intended to be cumulative, was held in *3618 , wherein the court said:
* * * The words used do not show that Congress intended a suit in equity as exclusive of all other methods in such cases. It seems to have taken care not to so prescribe. The two remedies could we coexist. * * * Congress, we assume, doubtless thought that cases might arise in which it would be desirable that all questions of title to property to be sold for taxes should be cleared up before a sale took place. Hence, the provision which authorized, but did not require, a suit in equity, and which left untouched the right of the Government to proceed by distraint. * * * Congress did not intend to take away the remedy by distraint and make the remedy by suit exclusive, but only to give another and cumulative remedy for the enforcement of liens and taxes.
Nor is it necessary in order to bring a suit in equity to proceed by distraint against personal property and find it insufficient. , citing *3619
Aside from the procedure outlined in section 280 of the Revenue Act of 1926, the United States may proceed in either of two ways to enforce its statutory tax liens. It may proceed by distraint, a nonjuducial remedy, or it may proceed by a bill in equity under section 3207, Revised Statutes, an in rem proceeding against real estate only in which it is not necessary to consider the sufficiency or insufficiency of any personalty. At all events, the lien that is enforceable either by distraint or by a bill in equity is the statutory lien created by section 3186, Revised Statutes. If the United States has no lien by virtue of that section, then it has no tax lien. See ; ; and .
We do not consider it necessary unduly to enlarge this opinion by an extended consideration of questions relative to the time the lien *133 arises; the time it attaches; or to what property it attaches, except to state that the lien arises only if there has been*3620 an assessment plus notice and demand. It relates back from the time of notice and demand to the time when the assessment list was received by the collector, and it attaches upon such property as the taxpayer has at the time the lien arises, that is, at the time of notice and demand, , and, of course, to all the property that the tax debtor subsequently acquires.
Since the language used in section 280 does not indicate the imposition of any new liability upon the transferee and inasmuch as the reports of the Senate Finance Committee and the Conference Committee state that such was not the intention of Congress, it follows that any liability assessable against the petitioners in the instant case will be that which is imposed upon them by reason of their having received property of the taxpayer. The transferred property was not, however, the individual property of Whittaker. It was a part of the assets of Whittaker & Bacon, a copartnership. The only interest which Whittaker had in the assets of the copartnerhip was a right to receive a part of the surplus proceeds, if any, of the partnership after partnership liabilities*3621 had been paid. In , the court said:
Nor is the contention of the United States strengthened by the provision in § 3186 of the Revised Statutes, as amended by the Act of March 4, 1913, c. 66, 37 Stat. 1016, that the amount due the United States from any person as a tax shall be a lien on all property and rights to property belonging to such person. To whatever extent this statute may be now applicable in a bankruptcy proceeding, under its very terms the lien includes only the property of the person owing the tax; and in the case of a partner owing an individual tax, it extends only to his interest in the surplus of the partnership property.
It results that in proceedings in bankruptcy against a partnership the partnership assets must be first applied to the payment of the partnership debts, and that the United States is not entitled to any priority of payment out of such assets for a tax due it from an individual partner, except to the extent of the share of such partner, if any, in the surplus remaining after the payment of the partnership debts.
The deficiency notice sent to the petitioners stated as follows:
As provided*3622 under section 280 of the Revenue Act of 1926, there is proposed for assessment against you an amount of $1,954.92, constituting your liability as transferee of the assets of the Estate of Robert Whittaker, Westboro, Massachusetts, for unpaid income and profits taxes in the above amount assessed against Robert Whittaker, plus any accrued penalty or interest for the calendar year 1919 * * *
This statement of respondent's position was affirmed specifically by the answer and it was not amplified either then or subsequently. We are of the opinion that the allegation of "liability as transferee of the assets of the Estate of Robert Whittaker, Westboro, Massachusetts, for unpaid income and profits taxes * * * assessed *134 against Robert Whittaker" was refuted by the evidence submitted at the hearing. All that the petitioners received was assets of the partnership of Whittaker & Bacon. Indirectly, they were liquidating the corporation and using the proceeds derived therefrom to pay partnership creditors. The evidence does not disclose whether after such liabilities are liquidated there will be any property remaining in the hands of the petitioners for the payment of the partners' *3623 individual debts or any property to be returned to the estate of Whittaker. In such a situation no lien attached to the assets held for the payment of the tax owed by Whittaker.
The petitioners not having received by transfer any property of Whittaker which would be liable to distraint and sale for the satisfaction of his tax liability are not liable for the deficienty in Whittaker's tax and the deficiency determined by the respondent may not be assessed against them.
Reviewed by the Board.
Judgment will be entered for the petitioners.