*1103 1. The liability notices herein were timely mailed under the provisions of section 275(a) and 311(b) of the Revenue Act of 1928.
2. Where a taxpayer has no assets at the date of the determination of a deficiency, the respondent, under section 311 of the Revenue Act of 1928, may proceed at once to collect the deficiency from stockholders who have acquired the assets of such taxpayer without consideration.
3. Amount of income which taxpayer realized from payments of an award to it by the Mixed Claims Commission, United States and Germany, determined. Marine Transport Co.,28 B.T.A. 566">28 B.T.A. 566, followed.
*578 In the proceeding at Docket No. 67860 the respondent has determined a deficiency in income tax against McIntyre Lumber & Export Co., hereinafter called the taxpayer, for the year 1930, in the amount of $168.31. At Docket Nos. 64585, 64586, 68238, and 68239 he has determined that E. D. Flynn and W. W. Cleveland are each liable under the provisions of section 311 of the Revenue Act of 1928*1104 for unpaid Federal income taxes of the McIntyre Lumber & Export Co. for the years 1928 and 1929 in the amount of $14,081.36 and for the year 1930 in the amount of $168.31. The issues are (1) whether taxpayer's receipts in the taxable years from *579 an award of the Mixed Claims Commissions, United States and Germany, hereinafter called the Commission, are taxable income as and when received, and (2) whether petitioners Flynn and Cleveland are liable under section 311 of the Revenue Act of 1928 for the alleged unpaid Federal income taxes of the taxpayer for the years 1928, 1929, and 1930. The several proceedings were consolidated for hearing. A stipulation of facts was read into the record which, together with the admissions of the parties as set out in he petition and answer, comprise all the evidence adduced at the hearing.
FINDINGS OF FACT.
The McIntyre Lumber & Export Co., hereinafter called the taxpayer, was a corporation organized under the laws of the State of Alabama in 1908, and engaged in the export business with principal offices at Mobile, Alabama. It continued in this business until some time in 1918, when it ceased active operations, but continued in existence*1105 until after the years involved in these proceedings. Its issued capital stock was 250 shares of a par value of $100 per share. The stockholders during the years involved were E. D. Flynn, who owned 118 1/4 shares; W. W. Cleveland, who owned 66 3/4 shares; and Mrs. W. W. Cleveland, who owned 65 shares.
In March 1916, the taxpayer bought a two-thirds interest in the schooner Magnus Manson for $77,000. The vessel was sunk by a German submarine on May 25, 1917. The vessel carried a total insurance of $100,000, all of which was collected within the year 1917. The difference between the cost of the taxpayer's interest in the vessel and its share of the insurance was $10,334.3j. It took no deduction in its 1917 return for any loss on account of the sinking the sum of $10,334.34 off its books as a loss, and in its 1918 income the sum of $10,333.34 off its books as a loss, and in its 1918 income and profits tax return took the item of $10,334.34 as a loss.
On January 16, 1920, the taxpayer and McPhillips filed a joint claim with the Department of State for $300,000, representing the alleged value of the vessel (allowance to be made, however, for the insurance recovered) at the*1106 time she was sunk. The United States prosecuted the joint claim so filed before the German-American Mixed Claims Commission, which on January 14, 1927, made an award to the several claimants. The amount awarded the taxpayer was $100,000, with interest at the rate of 5 percent per annum from November 11, 1918, to the date of payment. The net payments to taxpayer on account of the award were as follows:
| On account of - | 1928 | 1929 | 1930 |
| Principal | $99,500.00 | ||
| Interest | 13,641.04 | $3,585.82 | $4,402.57 |
*580 The taxpayer reported the amount received during 1928 as nontaxable income in its Federal income tax return for 1928. It similarly reported the amounts paid it during 1929 and 1930. It distributed the payments on the award to its stockholders as and when received. In those distributions the petitioners, E. D. Flynn and W. W. Cleveland, received sums as follows:
| E. D. Flynn | W. W. Cleveland | |
| 1928 | $53,515.72 | $30,208.65 |
| 1929 | 3,192.85 | 2,200.00 |
| 1930 | 2,082.42 | 1,175.49 |
Following the above distributions the taxpayer had no assets. While it was engaged in active business, the taxpayer kept its books and records on the*1107 accrual basis.
Prior to the determination of the liabilities in question against Flynn and Cleveland, the respondent mailed no deficiency notices for 1928 and 1929 to the taxpayer, which filed timely income tax returns for each of the years in question at dates not later than March 15, 1928 and 1929. The liability notices for the years 1928 and 1929 were mailed to the petitioners on March 4, 1932.
OPINION.
LANSDON: The petitioners' first contention is that as the respondent mailed no deficiency notices to the taxpayer for the years 1928 and 1929, no tax liability has been determined against the transferor and therefore none can be asserted against the transferees, and that even if the deficiencies in question existed, as a matter of fact and law, the statute of limitations had run as to any assessment against the taxpayer prior to the date at which the deficiency notices were mailed to the petitioners.
In our opinion the first point in petitioners' contention, as above set out, is without merit. A deficiency is not created by any act of the respondent, but by the facts and the legal significance thereof as set out in the taxpayer's income tax return. 1 The so-called*1108 "60-day letter" is no more than notice to the taxpayer that the amount of a deficiency disclosed by its return has been determined under the applicable statute. In our opinion no assessment, notice, or other act of the respondent is necessary to establish liability for income *581 taxes. We think that any deficiency existing at the date of a transfer of assets is a liability against such assets under the trust fund theory. ; .
The question here raised by the petitioners is material only as to whether the respondent exhausted all means to collect*1109 the unpaid taxes from the taxpayer before he proceeded against its stockholders as transferees of assets impressed with a trust in favor of the revenue. The record shows that during the years under review the taxpayer had no assets other than its receipts from the Commission and that such receipts were distributed to the petitioner as and when received. At March 4, 1932, the date at which respondent determined the liabilities of petitioner under section 311 of the Revenue Act of 1928, the taxpayer had no assets, and the respondent was without any means to enforce the collection of the deficiencies in question. In these circumstances it is clear that liabilities against the petitioners were properly determined unless barred by the statute of limitations at the date of such determination.
The income tax returns of the taxpayer for the years 1928 and 1929 were timely filed not later than March 15 of the years 1929 and 1930, respectively. Under the Revenue Act of 1928 the statute of limitations runs two years after the date of filing the return required by law. 2 The exception in section 275(a) relates to false returns or no returns and has no bearing on the issue here. It follows, *1110 therefore, that unless lawfully extended the periods of limitation expired against the taxpayer on March 15, 1931 and 1932, respectively. The liability notices were mailed on March 4, 1932, at which date the statute had run against the taxpayer for any deficiency due on account of its return for 1928, but not for the year 1929. The Revenue Act of 1928 gives the respondent one year after the expiration of the period of limitations against the taxpayer to assert liability against a transferee. 3 Since the notices of liability against the petitioners *582 for the unpaid tax of the taxpayer for 1928 were mailed on March 4, 1932, which was within one year after the period of limitation had run against the taxpayer, the action of the respondent was timely as to that year.
*1111 Counsel for petitioners also contends that petitioners Flynn and Cleveland are not liable for the taxes of the taxpayer from the years 1928 and 1929 since in each of such years the taxpayer had assets sufficient to pay its own taxes. The record does not support this contention. The taxpayer's only assets in all the taxable years here involved were its receipts from the Commission and its interest in the unpaid balance of the awards thereof at the end of each of such years. At January 1, 1931, the award was unpaid to the extent of $20,565.02, but this amount was a mere claim against the United States dependent upon an appropriation by Congress and can hardly be regarded as property subject to distraint for unpaid taxes. It is also clear that even this amount was received and distributed prior to the respondent's determination of liability against the petitioner and that at the date of such determination the taxpayer has no assets. On this point the contention of the petitioners is overruled.
Petitioners' final contention is that in no event can the award of the Commission be regarded as income. This issue was decided in *1112 and that decision is controlling here. The destroyed properties cost $77,000 in 1917. In the same year all the loss sustained except $10,333.34 was recouped by insurance. In 1918 the remainder of the cost was deducted from income as a loss in that year and such deduction was allowed by the respondent. It follows in conformity with our decision in , that the entire amounts realized from the awards of the Commission were taxable income as and when received.
The record discloses that petitioners Cleveland and Flynn, as stockholders of the taxpayer, each received assets thereof in excess of the liabilities asserted against the taxpayer. It follows that each is liable for the unpaid income taxes of the taxpayer for the years 1928, 1929, and 1930. .
Reviewed by the Board.
Decision will be entered for the respondent.
Footnotes
1. [Sec. 271(a), Revenue Act of 1928.] As used in this title in respect of a tax imposed by this title "deficiency" means -
(a) The amount by which the tax imposed by this title exceeds the amount shown as the tax by the taxpayer upon his return; but the amount so shown on the return shall first be increased by the amounts previously assessed (or collected without assessment) as a deficiency and decreased by the amounts previously abated, credited, refunded or otherwise repaid in respect of such tax * * *. ↩
2. [Sec. 275.] Except as provided in section 276 -
(a) General rule.↩ - The amount of income taxes imposed by this title shall be assessed within two years after the return was filed, and no proceeding in court without assessment for the collection of such taxes shall be begun after the expiration of such period.
3. [Sec. 311.] (b) Period of limitation. - The period of limitation for assessment of any such liability of a transferee or fiduciary shall be as follows:
(1) In the case of the liability of an initial transferee of the property of the taxpayer, - within one year after the expiration of the period of limitation for assessment against the taxpayer;
(2) In the case of the liability of a transferee of a transferee of the property of the taxpayer, - within one year after the expiration of the period of limitation for assessment against the preceding transferee, but only if within three years after the expiration of the period of limitation for assessment against the taxpayer; - except that if before the expiration of the period of limitation for the assessment of the liability of the transferee, a court proceeding for the collection of the tax or liability in respect thereof has been begun against the taxpayer or last preceding transferee, respectively, - then the period of limitation for assessment of the liability of the transferee shall expire one year after the return of execution in the court proceeding. ↩