*38 Decisions will be entered under Rule 50.
Payment by primary taxpayer to collector, and accepted by collector as such, of deficiencies determined in notice invoking the 5-year statute of limitations, held to constitute such payment of the original tax as to relieve petitioners of liability as transferees, notwithstanding the filing of a claim for refund by the taxpayer claiming that payment was made after the expiration of the statute of limitations; held, further, for the years as to which no notice of deficiency was sent to the primary taxpayer and no payment thereof accepted by the collector, the other requirements having been shown, petitioners are liable as transferees.
*709 Respondent determined that each of the petitioners was liable, as a transferee of the assets of Washington Farms, Inc., for deficiencies in income, declared value excess profits, and excess profits tax of $ 544.73, $ 607.31, and $ 688.87, respectively, for 1940; of $ 2,018.83 in income tax for 1941; and in income tax, declared value excess profits, and excess profits tax of $ 336.04, $ 2,937.71, and $ 17,981.20, respectively, for 1942. The sole issue is the extent of the liability, if any, of the petitioners as transferees. Some of the facts have been stipulated.
FINDINGS OF FACT.
The stipulated facts are hereby found accordingly.
Washington Farms, Inc., hereinafter called the Corporation, filed its returns for the years in controversy with the collector of internal revenue for the district of Georgia.
The Corporation, which was incorporated in Georgia in December 1930, actively engaged in the farming business until December 31, 1942. On that date the corporation had 436 shares of *40 capital stock outstanding. W. M. Wright, the deceased, was president and owned 218 shares. J. P. Quirk was vice-president and owned 200 shares. W. H. Hopkins was secretary and treasurer. Quirk's wife and two sons each owned 6 shares.
On December 31, 1942, the stockholders adopted a resolution to the effect that the corporation be completely liquidated on that day, authorizing the distribution of all assets to stockholders or their assignees in proportion to the respective stockholdings, and resolving that the *710 Corporation, at the option of its officers, might surrender its charter and be dissolved. The resolution stated that the net assets to be distributed were valued at $ 43,600, and that gifts of part of the assets in liquidation had been made by Wright to his wife, and by Quirk to his wife and two sons, with the result that Wright and his wife each owned an undivided 25 per cent interest, while Quirk, his wife and two sons each owned an undivided 12 1/2 per cent interest in the assets of the corporation in liquidation.
On December 31, 1942, the Corporation conveyed all of its assets to the above individuals, and on the same day the latter formed a partnership, known*41 as Washington Farms, Ltd., hereinafter called the Partnership, to which they contributed the assets received by them from the Corporation. Wright and his wife each had a 25 per cent interest, while Quirk, his wife and two sons each had a 12 1/2 per cent interest, in the Partnership. From that date until September 1, 1947, the Partnership carried on the farming business formerly conducted by the Corporation.
The assets distributed by the Corporation in December 1942 were of the value of $ 61,786.17, and the liabilities assumed upon receipt of those assets amounted to $ 18,186.17. Wright filed a gift tax return and Mrs. Wright filed a donee's information return, both executed in February 1943, each reporting a gift valued at $ 10,900, of 25 per cent of the assets of the Corporation received upon its complete liquidation.
Subsequent to December 31, 1942, the Corporation remained inactive, retained no physical assets, and did no business. However, it did not surrender its corporate charter, and the capital stock remained outstanding. The Corporation maintained no books of account and it filed no Federal income tax, excess profits tax, social security tax or withholding tax returns*42 for taxable periods after that date.
An information return on Treasury Department Form 966 was filed, which was signed on February 4, 1943, on behalf of the Corporation by Wright and Hopkins, and which was entitled "Return of Information Under Section 148 (d) of the Internal Revenue Code To Be Filed By Corporation Within 30 Days After Adoption of Resolution Or Plan Of Dissolution, Or Complete Or Partial Liquidation," and to which a copy of the corporate minutes relative to the liquidation was attached. Income, declared value excess profits and excess profits tax returns, signed on March 10, 1943, by Wright and Hopkins on behalf of the Corporation, were filed for the year 1942. Returns for the years 1940 and 1941 had been filed in previous years. The records of the collector of internal revenue show that on various dates, during the year 1943, amounts were paid against the tax liability of the Corporation for the year 1942. A soil conservation government payment due to the Corporation, but not reflected on its balance sheets, *711 was collected by the Partnership in 1943. In a consent dated December 15, 1943, Wright, on behalf of the Corporation, extended the time, under *43 the statute of limitations, for assessment of tax for the year 1940, to June 30, 1945. An excess profits tax refund bond of $ 49.25, bearing date of issue of April 18, 1944, and maturing on the last day of the second calendar year beginning after cessation of hostilities in the war, was received by Hopkins on an undisclosed date.
Eight letters, of varying dates from April 16, 1943, to November 17, 1945, were mailed to the Corporation by a revenue agent, with reference to its tax returns for 1940, 1941, and 1942. Late in 1945 the tax returns for those years were subjected to a field examination by a revenue agent who found that the Corporation possessed no property. At various times during the years 1944 to 1947, inclusive, Quirk and Wright executed consents extending the time, under the statute of limitations, for assessment and collection of liability against them as transferees of the Corporation.
On January 22, 1946, a 30-day notice proposing tax deficiencies for the years 1940, 1941, and 1942 was mailed to the Corporation. A protest was filed on behalf of the Corporation in which certain adjustments were conceded. On May 11, 1946, Wright mailed a check for $ 6,633.29, dated*44 May 10, 1946, payable to the collector, and drawn upon the Partnership bank account, in payment of the admitted liability, plus interest, to the internal revenue agent in charge who sent a letter dated May 13, 1946, acknowledging receipt of the check and stating that it had been forwarded to the collector "as partial payment of the proposed deficiencies totaling $ 25,114.69 for the above stated years." The Partnership books charged one-half of the amount of the check against Quirk's account, one-fourth of the amount against Wright, and one-fourth of the amount against Wright's wife. The internal revenue agent in charge forwarded the check to the collector of internal revenue for the district of Georgia who placed the money in an unclassified collections account used for funds with respect to which there is no assessment against which they can be applied.
In a power of attorney dated April 16, 1946, and signed by Wright as the former president and Hopkins as the former secretary and treasurer, W. H. Harris was authorized to represent the Corporation before the Treasury Department. A letter to Harris from the collector, dated February 20, 1948, stated that the remittance of $ 6,633.29*45 had been received in the collector's office on May 14, 1946. An application for relief in the sum of $ 1,404.96 under section 722 of the Internal Revenue Code, executed on May 15, 1946, by Wright and Hopkins, was filed on behalf of the Corporation, and a letter dated October 23, 1947, was subsequently mailed to the Corporation from the internal revenue agent in charge relative to that application. In a letter-dated November 15, 1946, Harris requested consideration of the proposed *712 deficiencies against the Corporation by the Technical Staff. A letter dated April 9, 1947, from the internal revenue agent in charge to Harris, stated that the Technical Staff had declined to consider the matter because the statutory period of limitations had expired. On the same day preliminary 30-day notices were mailed to Quirk and Wright proposing transferee liability against them for the tax deficiencies of the Corporation.
On April 24, 1947, an account was opened in the name of the Corporation at the Bank of Fort Valley in Fort Valley, Georgia. Wright and Hopkins were authorized to sign checks. The initial deposit consisted of a check in the amount of $ 10,500, payable to the order of*46 the Corporation, signed by Wright, and drawn upon the Partnership account in the same bank. Subsequent deposits of Partnership funds were made in that bank account in the amount of $ 1,504.79 on March 2, 1948, $ 525.72 on March 6, 1948, and $ 2,500 on April 12, 1948. The Partnership did not receive notes or security. Those amounts were recorded in the Partnership books as an account receivable against the Corporation.
A protest, dated May 14, 1947, was filed on behalf of the Corporation with the internal revenue agent in charge. On May 23, 1947, a revenue agent made a field examination and found no corporate assets except the bank account at the Bank of Fort Valley.
On June 9, 1947, a notice of transferee liability was mailed to Quirk. Wright died on August 30, 1947, and his wife, Ollie Belle Wright, hereinafter called Mrs. Wright, the sole beneficiary of the estate under his will, was appointed executrix. On October 31, 1947, a notice of transferee liability was mailed to the Estate of Wright. In petitions filed by Quirk on September 4, 1947, and by Wright's Estate on January 14, 1948, error was alleged on the ground that the Corporation possessed ample assets to pay its tax*47 liability and that respondent had not proceeded against the Corporation.
On September 1, 1947, a resolution of the stockholders of the Corporation recited their "desire to reactivate the corporation" after the death of Wright who had managed the enterprise, and authorized acquisition of the Partnership assets and operation of the business by the Corporation. On November 29, 1947, a resolution of the stockholders of the Corporation stated that the Partnership had completed negotiations for the sale of its assets, and provided that the resolution of September 1, 1947, be voided and canceled. At or about this time the assets of the business were sold by the Partnership.
On January 19, 1948, respondent mailed a notice of deficiency to the Corporation determining tax deficiencies totaling $ 21,254.95 for 1942, and invoking section 275 (c) of the Internal Revenue Code to extend the time for assessment, under the statute of limitations, from *713 3 to 5 years. No petition for redetermination of that deficiency was filed in the Tax Court.
On March 1, 1948, the collector received three claims for refund, signed on behalf of the Corporation by Mrs. Wright, as president, seeking recovery*48 of claimed overpayment of taxes in the amount of $ 253.09 for 1940, $ 495.91 for 1941, and $ 5,884.29 for 1942. Each claim stated that payment had been made on May 14, 1946, on account of taxes which were "barred of collection" under the statute of limitations.
On March 5, 1948, an account was opened on behalf of the Corporation at The First National Bank & Trust Co., Macon, Georgia. The signature card was signed by Mrs. Wright as president of the Corporation. The initial deposit consisted of a check of $ 12,995.21 drawn by Mrs. Wright against a "Farm Account" at that bank. That was the only deposit made in the account.
On April 14, 1948, a waiver of restrictions on assessment and collection of the deficiencies asserted in the statutory notice of deficiency of January 19, 1948, was executed on behalf of the Corporation, by Mrs. Wright as president, and on the next day that waiver was received by the collector, together with remittance of $ 27,737.71 in the form of two checks payable to the collector of internal revenue and dated April 12, 1948, both signed by Mrs. Wright as president of the Corporation, one check being in the amount of $ 15,030.51 drawn against the Bank of Fort*49 Valley, and the other check being in the amount of $ 12,707.20 drawn against The First National Bank & Trust Co. in Macon. Both checks were made payable to and were endorsed by the collector of internal revenue. The check against the Bank of Fort Valley closed that account. The account at The First National Bank & Trust Co. of Georgia was left with a balance of $ 288.01. By a check dated December 8, 1949, drawn payable to cash and signed by her as president of the Corporation, Mrs. Wright withdrew the sum of $ 280 from that account which she spent for her personal Christmas shopping, leaving a balance of $ 8.01.
A notice of assessments, dated May 26, 1948, was mailed to the Corporation, assessing a total of $ 21,254.95 in taxes for 1942 and $ 6,237.30 in interest. In letters dated May 21, 1948, June 10, 1948, and November 17, 1949, Harris requested the collector to apply the balance held to the credit of the Corporation in the unclassified collections account against its tax deficiencies for 1940 and 1941. A letter, dated May 25, 1948, from the collector to Harris stated that a postwar credit of $ 1,798.12 was to be allowed against the assessments, and that the credit held in*50 the unclassified collections account, resulting from the remittances of May 15, 1946, and April 15, 1948, had been applied as a payment against the assessments for 1942 leaving "a remaining credit held in my unclassified *714 collections account in favor of this taxpayer of $ 8,677.87." A letter dated June 15, 1948, from the collector to Harris, stated that "No assessment has been certified to me by the Commissioner of Internal Revenue for 1940 or 1941 and I, therefore, have no account for these years that I can apply a credit of any part of the payments you tendered in excess of the amount applied to the assessments for the year 1942."
On March 27, 1950, a claim for refund of $ 27,737.71 for the year 1942 was filed on behalf of the Corporation, based in part upon the ground that the assessment and collection of deficiencies for that year had been barred by the statute of limitations. In a letter to the respondent, dated January 14, 1949, Harris stated his intention to file suit upon the claims for refund in the Federal District Court.
OPINION.
The impression is conveyed by the present record that it embodies no such controversy as should ever have been used to occupy the time*51 of the parties, of the witnesses, and of the Tax Court. Respondent recognizes that "the deficiencies may be collected only once," and petitioners insist that there is no "desire on the part of the taxpayer to escape payment of any taxes that may be owing." 1 Nevertheless the complicated series of communications and payments which we recount in our findings has resulted in an apparently complete stalemate between the parties as to what the procedure of collection on the one hand and payment on the other should be.
*52 Accepting the statements of both litigants at their face value, we conclude that the proper solution of the respective liabilities is as follows: Taking the years in inverse order, the deficiency for 1942 has been paid; a deficiency notice properly addressed and presumably timely was sent to the taxpayer and uncontested by petition to the Tax Court, a waiver of restrictions on assessment and collection having been duly filed. Subsequently, unconditional payment of these deficiencies was made in the name of the taxpayer, accepted by the collector, and recorded upon his accounts. We see no impediment to treating these as final payments of the deficiencies in question, thereby eliminating any liability of these petitioners for that item. Sara E. Carpenter, 16 B. T. A. 98. A. H. Peir, 34 B. T. A. 1059, affd. (CCA-9), 96 Fed. (2d) 642, relied on by respondent, is not applicable, the deficiency there having been paid by another alleged transferee.
*715 It is, of course, conceivable that the corporate taxpayer will institute proceedings to recover the 1942 tax, for which a claim for refund was*53 filed after the present hearing, on the ground that it was paid subsequent to the expiration of the statute of limitations. See section 3770 (a) (2), Internal Revenue Code. Such a course could, however, be successful only if the deficiency against the primary taxpayer were incorrectly determined, or if the respondent were mistaken in determining that the statute of limitations was extended to the 5-year period by reason of the 25 per cent gross income provision. Internal Revenue Code, section 275 (c). We may dismiss the former. If the primary taxpayer was not properly subject to the tax, there is no reason why the transferees should bear the burden of it. As to the second possibility, there is nothing in this record to demonstrate that such a result will follow, and it is difficult to believe that any court will hold that since the transferees are succeeding here because of their claim that the deficiency has been paid, the corporation of which they are in essence the beneficiaries can subsequently secure a refund of the very payment on which that claim is predicated, bearing in mind that such a suit would be one of an equitable nature in which the principles of unjust enrichment*54 would necessarily be applied. Stone v. White, 301 U.S. 532">301 U.S. 532. We intimate no opinion, moreover, as to the further possibility, even if all these events should come to pass, of a further legal or equitable action on the part of the respondent to recover again any unpaid tax liability from the transferees.
As to 1940 and 1941, however, no deficiency notice has ever been issued to the taxpayer; no adequate waivers of the statute of limitations have been filed; no assessment of the deficiencies has ever been made; and, although remittances in the amounts claimed were received by the collector, they were not and could not be accepted by him as payment, and remained as deposits in a special account for which the evidence shows claims for refund have been filed. 2 As to these 2 years, all the requisites for transferee liability exist. The taxpayer was insolvent at the time of the transfer to petitioners and has been ever since; 3 assets of a value in excess of the deficiencies were received by petitioners, and there is now no contest as to the original tax liability of the principal taxpayer. We conclude that *716 as to these 2 years petitioners*55 are liable as transferees, Phillips v. Commissioner, 283 U.S. 589">283 U.S. 589, 604-5, with the understanding, of course, that upon payment by them the amounts deposited by the original taxpayer will be returned under the claims for refund. See Internal Revenue Code, section 3770 (a) (2), supra.
*56 Decisions will be entered under Rule 50.
Footnotes
1. Petitioners sum up their position as follows: "* * * the taxpayer's officers, the transferees, and their attorney have always shown their complete willingness and desire to pay whatever taxes might be owing. The best evidence of that is that the corporation paid what was considered its true liability * * * after the period for assessment had expired, just because the officers of the corporation, all of them then living, wanted to pay what was owing, without regard to any statute of limitations. That is still desired."↩
2. As petitioners concede in their brief: "Petitioners are in agreement with the statement * * * of the respondent's brief 'that the 1940 and 1941 deficiencies are in a different status from 1942 deficiencies'" and further, "that the payments on 1940 and 1941 deficiencies might be such that 'the collecting authority can only hold them in trust' * * *."↩
3. The Corporation's tax liability in the amount of $ 25,114.69, not here contested, must be considered in determining its solvency, Scott v. Commissioner↩ (CCA-8), 117 Fed. (2d) 36, as well as interest continuing to run. At date of transfer on December 31, 1942, taxpayer was left with no assets. When respondent proceeded against petitioner transferees in 1947 taxpayer had $ 10,500 in a bank account but it was indebted to the Partnership in like amount. It had a credit with the collector of $ 6,633.29 which was held and later applied against its tax deficiencies.