*1292 1. Held, that the sale evidenced by the record in these proceedings shows that corporate assets, and not capital stock owned by its stockholders, were the subject of transfer.
2. Where a deputy collector of internal revenue holding a distress warrant for collection of unpaid taxes of a dissolved corporation is informed by an agent of the stockholders that certain funds belonging to them, of the avails of the corporation, are held in trust at a local bank, and the agent urges him to levy upon the funds in order that a test case may be made respecting their ownership, in the local Federal courts, there is no legal duty thus imposed upon the deputy to follow such advice, and his refusal to do so will not prevent the otherwise statutory process of collecting the tax as deficiencies from the distributee stockholders.
3. Prior finding of no tax due made by the Commissioner on audit of a taxpayer's return does not preclude a subsequent determination of a tax deficiency, if the facts warrant and it is made within the statutory period allowed. James Couzens,11 B.T.A. 1040">11 B.T.A. 1040.
*608 The several petitioners, whose appeals were consolidated for hearing, are former stockholders of the Yoakum Ice Co., a dissolved Texas corporation. Upon the ground that these petitioners are the transferees of the assets of that corporation, the respondent has held them severally liable for its unpaid income taxes for the year 1928, in amounts as follows:
| Docket No. | Names | Deficiency |
| 67394 | M. C. Driscoll | $6,000.00 |
| 67400 | S. A. Carnes | 15,600.55 |
| 67397 | W. A. Carnes | 15,600.55 |
| 67401 | Celia Fetterly | 3,000.00 |
| 67403 | Estate of Lena B. Levy | 3,000.00 |
| 67395 | H. S. Paulus | 6,000.00 |
| 67396 | L. W. Sheckles | $15,600.55 |
| 67402 | C. C. Welhausen | 15,600.55 |
| 67398 | Peck Welhausen | 3,000.00 |
| 67399 | Woodring - Meyer Lumber Co | 15,600.55 |
The tax liability of the corporation for the year 1928 is not in dispute, but the petitioners all contend that they sold their stock therein prior to its dissolution and that the disbursements made to them, which the respondent has held represented liquidating dividends were payments for their stock so sold.
*609 FINDINGS OF FACT.
Prior to dissolution*1294 the Yoakum Ice Co., hereinafter called the Yoakum Co., was a Texas corporation engaged in operating an ice and cold storage plant at Yoakum, Texas. Its authorized capital stock was divided into 550 shares having a par value of $100 each; all of which, at times here material, was owned in varying proportions by the several petitioners.
Some time in the early months of 1928 the officers of the Yoakum Co. initiated negotiations with brokerage agents to sell the company's properties. After some correspondence and verbal discussions, these negotiations culminated in a written sale agreement which the parties executed and lodged with the Buchel National Bank of De Witt County, Texas, their escrow agent, as follows:
We hereby confirm deposit of buyer of $10,000, in escrow, for the following purposes.
Buyer has contracted to buy, and seller to sell on September 5th, 1928, the Ice Manufacturing Storage, and Reicing Plant, and business complete, including all delivery and utility equipment, real estate, merchandise, material and supplies, ice contracts and fuel contracts, of every kind and character used and usable in connection therewith (subject to ordinary depreciation and accretions*1295 occurring prior to purchase) by valid conveyance free and clear of all debts and liens, for a cash consideration of $165,000, said property located at Yoakum, De Witt County, Texas.
Seller being a private corporation, buyer may require and is now here giving the option to require, transfer of all issued stock of seller corporation in lieu of conveyance of its physical properties.
Buyer's obligation to purchase is contingent on approval (a) of buyer's counsel, Geo. G. King, or J. W. Cooke, whose opinion with reference thereto shall be accepted and acted upon by the Buyer, as to:
(1) titles to properties and freedom from debts and lien;
(2) non-existence of burdensome operating contracts, and
(3) validity of corporate organizations and outstanding stock thereof; and written report approving or pointing objections out, if any, to sellers property in respect to each such contingency, with reasons for such objections, must be delivered by buyer to seller within thirty days of the date buyer is furnished necessary papers or given proper opportunity to make examination of sellers property in respect of such contingency; and sellers are given thirty days from receipt of such written*1296 report within which, it possible, to cure such objections, if any, and to resubmit such papers or property for further examination, and final approval or disapproval, which final approval or disapproval must be evidenced by written report, stating objections, if any, and giving reasons therefor, delivered to sellers within fifteen days of the date of such resubmission.
When delivery of property (or stock) is made as hereinabove provided, escrow money is to be applied on account of purchase price and balance paid by seller's draft with conveyance (or stock certificates) and other necessary documents attached, drawn direct on buyer through this Bank and Central Trust Company of Illinois, at Chicago, Illinois, subject to buyer's right to examine instruments of conveyance (or stock certificates) and other accompanying documents.
*610 If purchase is not completed due to non-compliance with any condition or any default of seller's part, escrow money shall be returned to buyer on demand without prejudice to buyer's rights.
If purchase is not completed due to failure on the part of buyers, escrow money is to be paid to and accepted by sellers as liquidated damages and in full*1297 satisfaction of all claims against buyer.
It is hereby agreed that the agreement with S. A. Carnes and Son, for the storage of eggs and turkeys, be continued on the present basis of 10 cents per case for short storage and 55 cents per case for season storage, and of 1 cent per pound for turkeys.
Taxes, insurance, rentals and prepaid or prebilled customers accounts are to be prorated as of the date purchase is completed.
Signed copies of this agreement this day deposited in the undersigned bank, which is agreed by the parties to be a bank in De Witt County, Texas, and sight draft upon buyer payable at Central Trust Company of Chicago, Illinois, in the amount of Ten Thousand ($10,000) Dollars, is handed to undersigned bank to be forwarded for collection; upon receipt by the undersigned bank of the proceeds of said draft, this contract becomes effective, and said proceeds shall constitute the escrow money hereinabove mentioned; but in the event that said escrow money is not received by undersigned bank within ten days from this date, this contract becomes null and void and of no effect.
This bank accepts the above mentioned escrow upon the foregoing terms.
By further written*1298 agreement between the parties, dated August 22, 1928, the time limit for completing the above sale was extended to October 15, 1928.
On August 17, 1928, special meetings were held by the Yoakum Co.'s stockholders and directors, respectively, approving the foregoing agreement and conferring upon its officials adequate authority for carrying it into effect. On October 3, 1928, pursuant to such action, said officials executed an instrument of conveyance in terms as follows:
Southwest Ice Company,
Yoakum Ice Company
Deed to
THE STATE OF TEXAS
COUNTY OF DE WITT
KNOW ALL MEN BY THESE PRESENTS:
That Yoakum Ice Company, a private corporation, duly incorporated under the laws of the State of Texas, and having its principal office and place of business in the City of Yoakum, De Witt County, Texas, acting herein by its president, L. W. Sheckles, and its secretary, W. A. Carnes, hereunto duly authorized by a resolution duly adopted by its Board of Directors in a meeting called for that purpose in accordance with the By-Laws of said Company, and with the approval of its stockholders, a certified copy of which resolution accompanies this instrument and is here referred to and made*1299 a part hereof, for and in consideration of One Hundred and Sixty-Five Thousand ($165,000) Dollars cash, to it in hand paid by Southwest Ice Company, a private corporation, duly incorporated under the laws of the State of Texas, the receipt of which is hereby acknowledged, has granted, bargained, sold, and conveyed and by these presents does grant, bargain, sell and convey unto the said *611 Southwest Ice Company all those certain pieces of parcels of land situate, lying and being in the city of Yoakum and lying partly in De Witt and party in Lavaca Counties, State of Texas, and described as follows: [Description follows.]
And said Yoakum Ice Company does also hereby bargain, sell, convey, and set over unto said Southwest Ice Company, its entire ice manufacturing, storage, and reicing plants and business complete as heretofore operated by it in the city of Yoakum, Texas, and all appurtenances thereto appertaining or be longing, and all machinery, appliances, fixtures, delivery and utility equipment, boilers, engines, tanks, cans, fittings, and all merchandise, material, supplies, ice contract, fuel contracts, and personal property whatsoever, used or usable in connection*1300 with said ice manufacturing, storage and reicing plants and business of said grantor, save and except stocks of fuel, feed, gravel, sand, wood, coal, shares of stock in building and loan association, cash on hand and notes and accounts receivable on hand at date of delivery of this deed and conveyance, all free and clear of any debts or liens whatsoever.
To have and to hold the above described property real and personal, together with all and singular the rights and appurtenances thereunto in anywise appertaining or belonging unto the Southwest Ice Company, its successors and assigns forever, and it the said Yoakum Ice Company, does hereby bind itself, its successors and legal representatives to warrant and forever defend all and singular the said premises and property unto the said Southwest Ice Company, its successors and assigns, against every person whomsoever lawfully claiming or to claim the said or any part thereof.
In testimony whereof, said Yoakum Ice Company, has caused these presents to be executed by the hand of its president and attested by secretary with its corporate real attached, this 3rd day of October, A.D., 1928.
This conveyance, with assignment of the*1301 A. I. Cammack contract, and certain other title memoranda called for by the grantee's attorney were forwarded by the escrow agent, together with a draft drawn by the Yoakum Co. upon Cammack & Co. for $155,000, the balance of the sale price, to a Chicago Bank for delivery and collection.
On October 15, 1928, the escrow agent received word from Cammack & Co. that the papers had been delivered and the draft paid. The escrow agent, after receipt of the proceeds of sale on October 1928, credited the Yoakum Co. with an additional $155,000 on its books.
Prior to sending the deed for delivery and draft for collection, as hereinabove described, some of the Yoakum Co.'s stockholders deposited their stock certificates with the escrow agent in accordance with an understanding that when the money was collected from the sale they were to receive $300 per share for their stock.
Upon receipt of the proceeds of the sale, the escrow agent notified the president of the Yoakum Co. that those who had deposited their stock with it could come in and get their money. Subsequently the remaining stockholders of the Yoakum Co. surrendered their certificates *612 to the bank and received their*1302 distributive shares of the proceeds of the sale, which amounted to $300 for each share. Upon this basis these petitioners each received in cash sums equal to the amounts respectively set opposite their names in the tabulation above.
After disbursement of all of the sale proceeds, as aforesaid, the bank's official in charge of the escrow trust canceled all stock certificates of the Yoakum Co. by running them through the bank's perforating machine and then forwarded them to the Yoakum Co.'s president.
The Yoakum Co. ceased active business after completion of the sale, and on December 31, 1928, a balance sheet prepared by its auditor for income tax purposes, showed the following set up:
| Assets | Liabilities | ||
| Accounts Receivable | $392.84 | Capital Stock | $3,001.46 |
| Cash in bank, F. & M. State | 7,378.82 | Res. for contingency | 573.10 |
| Cash in Yoakum National Bank | 5,108.39 | Accounts payable | 573.10 |
| Harness, horses, wagons | 163.33 | Stockholders fund | 10,794.23 |
| Inventory | 25.41 | ||
| Yoakum Bldg. & Loan Association | 1,300.00 | ||
| Total Assets | 14,368.79 | Total Liabilities | 14,368.79 |
For liquidation purposes about March 14, 1929, the assets of the Yoakum Co. net*1303 sold under the aforesaid agreement were segregated in the Yoakum National Bank of Yoakum, Texas, and credited to the account of W. A. Carnes and L. W. Sheckles, as trustees for the stockholders of that company.
The Yoakum Co. was formally dissolved by a court order on December 13, 1930, pursuant to quo warranto proceedings instituted against it by the State of Texas for failure to pay its 1929 state corporation franchise tax.
The Yoakum Co.'s income tax return for 1928 was filed June 15, 1929, and in it no reference was made to profit derived from the sale of its assets. The respondent, in his audit of that return, included profit from the sale and determined a deficiency in tax amounting to $15,600.55, with $1,792.99 interest. On February 14, 1931, an assessment of this deficiency and interest was made by the respondent and notices thereon with demands for its payment mailed to "Yoakum Ice Company, c/o L. W. Sheckles, President, Yoakum, Texas," on February 20 and March 4, 1931, respectively. Payment not having been made upon these demands, on March 23, 1931, a warrant for distraint against the Yoakum Ice Co. was issued by the collector of internal revenue at Austin and*1304 placed in the hands of one of his deputies located at Yoakum for service.
*613 At or about the time of the issue of the distraint warrant these petitioners, as former stockholders of the Yoakum Co., had in the hands of their trustee at a local bank some undistributed funds from liquidation of that company's assets. In order to lay the groundwork for litigation in the local Federal courts to decide the ownership of such funds they employed John M. Moore, a bookkeeper, to represent their interests before the deputy collector. Moore came to Yoakum, where he met the deputy collector and discussed the subject concerning which he had been employed. Among other things, Moore told the deputy "that there was a bank account of the stockholders of Yoakum Ice Company" and "invited him to come down to the bank and make the levy." Among other things, in this connection Moore told the deputy collector that "in the event there had been a sale of the assets, this money was available to him for levy; but, if there were a sale of stock, that he could not touch it." He did not tell the deputy collector the amount on deposit. No levy or attempt at levy under the warrant of distraint was made*1305 on the deposit.
On December 5, 1931, Sheckles and his cotrustees for the Yoakum Co.'s stockholders' fund distributed the residue in their hands among these petitioners, paying to each the ratable share as determined by their surrendered stock in the Yoakum Co.
On June 12, 1932, in conformity with section 272 of the Revenue Act of 1928, the respondent sent deficiency notices to these petitioners, advising them of his determination respecting their liability under section 311 of the same act as transferees for the unpaid taxes of the Yoakum Ice Co., as hereinabove set forth.
OPINION.
LANSDON: The petitioners contend that the sale here in issue was of their stock in the Yoakum Co. and not of the corporation's assets. All written records of that transaction, including the deed, identify assets and not stock as the subject matter of sale, and these records are controlling here. ; .
The petitioners make much of the terms of the agreement which gave the purchaser the right to require a transfer of all issued stock "in lieu of" the physical properties; but the record shows*1306 that that option was not exercised and also that in fact no stock certificates were transferred to the purchasing corporation. It also shows that the petitioners retained control of the Yoakum Co. and all of its affairs to the date of its dissolution; and that after dissolution they distributed its remaining assets among themselves.
*614 Based upon the only competent evidence in the record, we hold that the petitioners are transferees of the assets of the Yoakum Co., within the provisions of section 311 of the Revenue Act of 1928, and affirm the determination of the respondent. ; ; .
The petitioners next contend that the respondent has failed to show his inability to collect the tax from the defunct corporation. The record shows that at the time this tax deficiency was determined the Yoakum Co. had distributed its assets and ceased to exist. The petitioners, however, refer to the fact that some part of the corporation's assets remained in the hands of their trustees at the time of and after the deficiencies were determined and*1307 argue that it was the respondent's duty to levy on this fund on deposit in the bank. We are unable to see how such action would have changed the status of the petitioners as transferees of their corporation's assets. At the time referred to the corporation had vanished from the picture and the trustees in charge held its remaining assets for the sole benefit and use of the stockholders. There was no duty resting upon the respondent to pursue the method of collection suggested by the petitioners' representative. We see no merit in this last contention. The method followed by the respondent was in accordance with law and is therefore approved.
One other assignment of error, which all petitioners have pleaded in their petitions, remains to be disposed of. The substance of it is that the respondent was and is without right to make the disputed assessments against them because, as alleged in the pleadings, "respondent and, consequently, none to be determined against this petitioner and, consequently, none to be determined agains this petitioner as alleged transferee." The records show no effective closing of the dissolved corporation's tax account prior to the final audit here*1308 complained of. Cf. ; . The challenged deficiencies were timely determined and in accordance with the statutory provisions pertaining thereto.
Because of a prior adjudication in bankruptcy of petitioner M. C. Driscoll, Docket No. 67394, and stipulations made between attorneys for respondent and petitioners, the appeal in that case is dismissed from consideration in these proceedings.
Decision will be entered for the respondent.
Footnotes
1. Proceedings of the following petitioners are consolidated herewith: M. C. Driscoll; L. W. Sheckles; W. A. Carnes; Peck Welhausen; Woodring-Meyer Lumber Company; S. A. Carnes; Celia Fetterly; C. C. Welhausen; and M. A. Meyer, Executor, Estate of Lena R. Levy. ↩