1932 BTA LEXIS 1417">*1417 Petitioners surrendered their stock in a corporation and received payment therefor at a date when the taxpayer was solvent, and such payment did not result in insolvency. Held, that no liability under section 280 of the Revenue Act of 1926 resulted from such transaction.
25 B.T.A. 1161">*1161 The respondent has asserted liability under section 280 of the Revenue Act of 1926 against Ella J. Williams, Olive R. Pope, and Charles Havard. The tax in controversy is the unpaid corporation income tax of the Elk City Ice, Light and Fuel Company of Elk City, Oklahoma, for the year 1921 in the amount of $1,513.45. Petitioners concede that the deficiency determined against the taxpayer is correct, but deny any liability therefor.
FINDINGS OF FACT.
The petitioners are individuals. Ella J. Williams and Olive R Pope are residents of Long Beach, California, and Charles Havard is a resident of Homer, Illinois. On December 31, 1923, the several petitioners owned stock of the Elk City Ice, Light and Fuel Company, in the respective amounts of1932 BTA LEXIS 1417">*1418 23, 23 1/2, and 15 shares of the par value of $100 each. About June 1, 1924, such shares were turned 25 B.T.A. 1161">*1162 in to the taxpayer and its checks in the respective amounts of $2,415, $2,467.50, and $1,627.50 were issued in payment therefor. The shares so surrendered were taken into the accounts of the taxpayer as treasury stock and later reissued to W. E. Corn, who was the owner of record thereof at the date of the application for dissolution.
The Elk City Ice, Light and Fuel Company, herein sometimes called the taxpayer, was incorporated about 1911 under the laws of Oklahoma. Its authorized capital was $60,000, divided into 600 shares of the par value of $100 each, all of which had been issued and was outstanding at December 31, 1923, when at a regular stockholders' meeting a resolution was passed "authorizing the officers to sell or trade or otherwise dispose of any or all of the property of the company, including real estate." At the same meeting it was ordered that the dividends for 1923 should be $10 per share on all stock. The books of the taxpayer as of such date disclose net earnings for 1923 of $9,776.30, assets of $111,101.75, and liabilities to balance, including1932 BTA LEXIS 1417">*1419 outstanding stock of $60,000, a surplus of $15,697.19, and undivided profits of $9,776.30.
The tangible assets of the taxpayer at December 31, 1923, included investments in light plant and ice plant in the respective amounts of $51,303.65 and $22,934.47, which represented the depreciated cost of such plants as of that date. Prior to June 1, 1924, the taxpayer sold its light plant to the Central Oklahoma Gas Company for $50,000, and sometime in August, 1925, it sold its ice plant to the Kingfisher Ice Company for $20,000. These sales did not include accounts receivable, cash or any other property not described in the transfer instruments.
On October 28, 1925, the stockholders of the taxpayer authorized its officers to take all the steps necessary to dissolve the corporation, and on June 28, 1926, the application for dissolution was filed in the office of the District Court in and for Beckham County of Oklahoma and duly endorsed by the clerk of such court. The record does not disclose when, if ever, the said court promulgated a decree of dissolution as required in chapter 34, Article V, of the Revised Statutes of Oklahoma. The minutes of the special meeting of the stockholders1932 BTA LEXIS 1417">*1420 of the taxpayer in which dissolution thereof was authorized set forth that the stockholders present in person were W. C. Corn, 575 shares; J. L. Corn, 20 shares; and W. J. Corn, 5 shares, and indicate that on October 28, 1925, all the authorized capital stock was issued and outstanding.
At June 1, 1924, the taxpayer was solvent, with a book surplus of approximately $16,000 of which $15,000 represented going value.
After the sale of its light plant about June 1, 1924, the taxpayer continued the business of manufacturing and selling ice until August, 1925, when the ice plant was sold. At December 31, 1924, 25 B.T.A. 1161">*1163 it still owned undistributed assets which had a book value substantially in excess of liabilities other than stock.
On the assessment list of July, 1926, the respondent assessed income and profit taxes for 1921 against the taxpayer in the amount of $1,513.45. On April 27, 1927, he mailed a notice of liability for such tax under section 280 of the Revenue Act of 1926 to Ella J. Williams and Olive R. Pope and on October 27, 1927, he mailed a similar notice to Charles Havard. This proceeding is an appeal as provided by law from such determination of liability.
1932 BTA LEXIS 1417">*1421 OPINION.
LANSDON: The question of the statute of limitation raised in the original petition has already been decided in favor of the respondent. . The petitioners concede the deficiency assessed against the taxpayer for 1921 is correct in amount, but deny that they have ever received any of the assets thereof in circumstances that bring them within the provisions of section 280 of the Revenue Act of 1926.
Upon the record it is perfectly clear that the petitioners surrendered their stock and received payment therefor in the checks of the taxpayer about June 1, 1924, in the amounts set forth in our findings of fact. The record does not support a finding of fact that the taxpayer was liquidating its business at June 1, 1924. The only corporate action relating in any way thereto was the resolution of the stockholders on December 31, 1924, authorizing the sale of the corporate assets, but that resolution is silent as to the disposition to be made of the proceeds of such sale. The certificates for which the petitioners were paid were not canceled, but were taken into the accounts of the taxpayer as treasury stock and later reissued1932 BTA LEXIS 1417">*1422 to W. E. Corn. After the petitioners and several other stockholders had turned in their certificates and received payment therefor, the taxpayer continued in the business of manufacturing ice and selling coal for more than a year. The first corporate action looking to the closing out of the business was a resolution adopted on October 28, 1925, and the application for dissolution which was filed on June 28, 1926. Even then there is no statement to show whether the assets of the corporation had been distributed prior to the resolution authorizing dissolution or were to be distributed by the statutory trustees thereafter.
The payments to the petitioners were relatively small, were made when the taxpayer was solvent, and did not create insolvency. The books of the taxpayer disclose corporate surplus on December 31, 1923, in an amount in excess of $16,000 and that it business was prosperous from that date until June 1, 1924. The payment of 25 B.T.A. 1161">*1164 $6,510 to the petitioners at about the latter date was not sufficient to absorb the corporate surplus and left the taxpayer in sound financial condition to proceed with the business of manufacturing and selling ice, and its balance1932 BTA LEXIS 1417">*1423 sheet included in its income-tax return for 1924 indicates solvency at December 31 of that year. In , relying on , we said:
If a corporation transfers a part of its assets to stockholders while it is solvent and is not made insolvent by the transfer, there is no liability either at law or in equity on the part of the stockholders who receive such distribution, even though the corporation subsequently becomes insolvent and is no longer able to pay its debts.
The Keller decision, supra, is consistent with the well settled rule that a distribution to the stockholders of a corporation does not impress the funds so paid with a trust in favor of creditors or remaining stockholders unless the corporation was insolvent at the date of payment or insolvency was thereby created. ; ; ; 1932 BTA LEXIS 1417">*1424 .
Decision will be entered for each of the petitioners.