*1548 Held, that respondent has not established that petitioner was liable as a transferee.
*990 This proceeding was brought to redetermine the liability of the petitioner as transferee for a deficiency in income and profits taxes assessed against the Krug Baking Company of Ohio for the year 1918 in the amount of $17,127.60. This amount has been reduced by stipulation between the parties to the sum of $13,254.34.
The petitioner alleges that the respondent erred:
(1) In proposing to assess a deficiency against the petitioner as transferee of the assets of the Krug Baking Company of Ohio.
(2) In failing either to issue warrants of distraint or to institute proceedings in court to enforce collection of the tax within the statutory period of limitation thereon.
(3) In failing to allow the proper war-profits credit in determining the tax herein involved.
The petitioner also alleges that section 280 of the Revenue Act of 1926 is unconstitutional.
The proceeding was submitted on the petitioner, the amended*1549 answer and a stipulation of facts.
FINDINGS OF FACT.
From the stipulated facts and the pleadings we find the following facts:
The Krug Baking Company was organized under the laws of the State of Ohio in 1915 and was engaged in the baking business at 13 Joe Street, Dayton, Ohio. It was dissolved on March 21, 1921.
On the first day of July, 1918, the Krug Baking Company of Ohio entered into a written agreement with William B. Ward by which the company agreed to sell and convey to Ward or his assignee all of the company's property of every kind whatsoever, real, personal and mixed, for the consideration of $325,000, to be paid by the purchaser as follows: $25,000 in cash on the closing of title, five promissory notes of $20,000 each, bearing interest at the rate of 7 per cent per annum, and the balance of $200,000 by executing a purchase-money mortgage for that amount to secure the payment of an issue of bonds payable in yearly amounts of $20,000 each, beginning January 1, 1925, and bearing interest at the rate of 6 per cent per annum, payable semiannually. The seller agreed not to engage directly or indirectly in the baking business for a period of 10 years within a radius*1550 of 50 miles from the plant at Dayton, Ohio. The agreement also provided, among other things, that:
*991 The purchaser shall also assume and pay all of the debts and obligations of said company of every kind and description including its United States income taxes since January 1, 1918, with the understanding that such debts and obligations, but not including any excess profits or income tax as aforesaid, shall not be in excess of $10,000 over its bills and accounts receivable.
In accordance with the terms of the contract between Ward and the Krug Baking Company of Ohio, Ward assigned all his rights and obligations under the contract to the Krug Baking Company, a corporation organized under the laws of the State of Delaware. The Krug Baking Company of Delaware was thereupon substituted in place of Ward as purchaser of all the assets of the Krug Baking Company of Ohio and thereupon became liable for all obligations incurred by Ward under the contract. The terms and conditions of the contract were carried out as therein provided and the consideration of $325,000 therein mentioned was paid to the Krug Baking Company of Ohio. The proceeds of the sale of the Krug Baking Company*1551 of Ohio, namely, $325,000, were distributed to George F. Krug, its principal stockholder, upon dissolution.
William B. Ward was not a stockholder of the Krug Baking Company of Ohio, nor was any stockholder of that company a stockholder of the Krug Baking Company of Delaware.
From July 1, 1918, until December 31, 1922, the Krug Baking Company of Delaware was engaged in the baking business at 13 Joe Street, Dayton, Ohio.
On October 1, 1919, Ward Brothers Company, a corporation organized under the laws of the State of New York, the petitioner herein, acquired all of the capital stock of the Krug Baking Company of Delaware. On December 31, 1922, the petitioner succeeded to the assets and assumed all the liabilities of the Krug Baking Company of Delaware. The assets succeeded to had a net value in excess of the amount of taxes herein in controversy. The transfer of assets from the Krug Baking Company of Delaware to Ward Brothers Company, the petitioner, was in liquidation of the capital stock of the Krug Baking Company of Delaware owned by the petitioner. The baking business formerly conducted by the Krug Baking Company of Delaware was conducted at the same location, namely, *1552 13 Joe Street, Dayton, Ohio, by the petitioner on and after December 31, 1922.
On June 16, 1919, the Krug Baking Company of Delaware filed with the collector of internal revenue for the first district of Ohio a document purporting to be a corporation income and profits-tax return in behalf of the Krug Baking Company of Ohio for the period from January 1 to July 30, 1918, inclusive. This document was not sworn to. The income and profits taxes as computed on the document, namely, the sum of $12,174.88, were paid.
*992 There were filed in the Treasury Department documents dated, respectively, February 28, 1924, April 1, 1925, and November 3, 1925, which purported to extend the period within which taxes for the year 1918 might be assessed against the Krug Baking Company of Ohio. The document dated February 28, 1924, was signed by the Commissioner of Internal Revenue and by G. G. Barber as treasurer and William B. Ward as president of the Krug Baking Company. G. G. Barber and William B. Ward were at no time officers, directors, stockholders or agents of the Krug Baking Company of Ohio. The documents dated, respectively, April 1, 1925, and November 3, 1925, were signed*1553 by the Commissioner of Internal Revenue and by "Ward Bros. Co. (Successors to The Krug Baking Company Inc. by Brayton Campbell sec'y & Treas)." The three documents referred to were the only documents filed purporting to extend the time within which taxes for the year 1918 might be assessed against the Krug Baking Company of Ohio.
On July 19, 1922, the respondent assessed against the Krug Baking Company of Ohio additional income and profits taxes for the year 1918 in the amount of $17,127.60, no part of which has been paid. On July 18, 1927, the respondent notified the petitioner that it was proposed to assess this deficiency against the petitioner as transferee and on October 28, 1929, "a 60-day notice of deficiency was mailed" to George F. Krug as transferee.
It is stipulated that the correct deficiency in tax of the Krug Baking Company of Ohio for the year 1918 is $13,254.34 and that this is the amount collectible from the petitioner if any amount whatever is collectible from the petitioner as transferee.
OPINION.
VAN FOSSAN: The fundamental question for determination in this proceeding is whether or not, under the provisions of section 280 of the Revenue Act of 1926, *1554 the petitioner is liable as a transferee for the additional income taxes for the year 1918 which were assessed against the Krug Baking Company of Ohio.
Under its contract of July 1, 1918, with William B. Ward the Krug Baking Company of Ohio made a bona fide sale of all its property of every kind to the Krug Baking Company of Delaware, which was Ward's assignee. There was no identity of stockholders of the two companies nor was Ward a stockholder of the Krug Baking Company of Ohio. At the date of the contract no income taxes for the year 1918 had accrued or were due from the Ohio company. The consideration for the sale was the payment to the Ohio company of $325,000 and an agreement on the part of the Krug Baking Company of Delaware, through Ward, its assignor, that it would pay the *993 Ohio company's debts in an amount not in excess of $10,000 more than the Ohio company's bills and accounts receivable, together with the further agreement that the Delaware company would pay the Ohio company's "United States income taxes since January 1, 1918." It was stipulated by the parties to this proceeding that "the terms and conditions of the said contract were carried out as therein*1555 provided." The cash price, namely, $325,000, was paid to the Ohio company in the manner provided in the contract and, upon the dissolution of that company, that sum, which appears to have been the Ohio company's only asset after the sale, was distributed to its chief stockholder, one George F. Krug. Krug is not a party to this proceeding and therefore we may not determine whether or not he is a transferee of the Krug Baking Company of Ohio who is liable under the provisions of section 280 of the Revenue Act of 1926 for the payment of the deficiency involved herein.
It is manifest from the facts that the sale of the property of the Krug Baking Company of Ohio to the Krug Baking Company of Delaware, under the terms of the Ohio company's contract with William B. Ward, was not made in fraud of creditors and that the Ohio company was not insolvent at the date of the contract or immediately thereafter. If, therefore, the Delaware company was liable at any time as a transferee to pay the income taxes of the Ohio company for the year 1918, the liability was predicated on the Delaware company's purchase of the Ohio company's property under a contract providing that the purchaser would*1556 pay the seller's "United States income taxes since January 1, 1918." If the petitioner, which four years after the date of the sale referred to succeeded to the assets of the Delaware company, is liable for payment of the deficiency involved herein its liability must be predicated on proof that it received from the Delaware company assets which had been the property of the Krug Baking Company of Ohio and also on proof that it assumed a liability to pay the Ohio company's income taxes for the year 1918 as provided in the contract of July 1, 1918. If it is not proved that the petitioner received from the Delaware company assets of the Ohio company purchased under the contract of July 1, 1918, then the petitioner can not be held liable as a transferee of the Ohio company for the deficiency involved, for the reason that the liability assessable under section 280 of the Revenue Act of 1926 is that imposed upon transferees by reason of their receipt of property of the taxpayer. See Report of the Senate Committee on Finance, January 22, 1926, pp. 28, 29, 30; *1557 . On December 31, 1922, the petitioner succeeded to the Delaware company's assets in liquidation of that company's stock which the petitioner owned. The petitioner at that time assumed all *994 of the Delaware company's liabilities and the value of the assets of the Delaware company received by it was in excess of the amount of the deficiency here involved. These facts are stipulated. But there is no proof in the record that among the assets received by the petitioner from the Delaware company there was included any of the property received by the Krug Baking Company of Delaware from the Krug Baking Company of Ohio. More than four years had elapsed since the date of the contract of sale of the Ohio company's property and the performance of that contract and much may have occurred during that interval with reference to such property received by the Delaware company. It may have been destroyed; it may have been burned; some of it may have been sold, but if sold there is no evidence that the cash received therefor by the Delaware company had not been dissipated or otherwise disposed of. In other words, there is no evidence*1558 whatever of the identity of the property received by the petitioner from the Krug Baking Company of Delaware with the property sold to that company by the Krug Baking Company of Ohio. Hence, there is a complete failure of proof as to an essential fact and with respect to that essential fact we are left to sheer conjecture. Moreover, we are of the opinion that the evidence fails to establish that included in the liabilities of the Delaware company assumed by the petitioner was the liability under the contract of sale of July 1, 1918, to pay the Ohio company's "United States income taxes since January 1, 1918." In 1919 there had been filed in behalf of the Krug Baking Company of Ohio an unsworn corporation income and profits-tax return for the year 1918, and the amount of the taxes as therein computed, namely, the sum of $12,174.88, was paid. Whether such payment satisfied all that was understood between the parties to the contract of July 1, 1918, as to the meaning and intent of the agreement to pay "United States income taxes since January 1, 1918," does not appear as a fact in this proceeding. Be that as it may, however, it was stipulated by the petitioner and the respondent that*1559 "the terms and conditions" of the contract of July 1, 1918, between the Krug Baking Company of Ohio and Ward, the Delaware company's assignor, "were carried out as therein provided." If that stipulation means anything it means that all the agreements and covenants to be performed by the Delaware company under the contract of 1918 were performed by it. It follows that so far as the record in this case is concerned it is not shown that the petitioner assumed any liability to pay the Krug Baking Company of Ohio's 1918 income and profits taxes. The respondent contends that under the provisions of the contract of July 1, 1918, the United States could successfully maintain a suit at law or in equity against the petitioner to enforce the collection of the deficiency herein *995 involved and in support of this contention the respondent cites ; , and other cases holding in effect that under the conditions therein set forth a stranger to a private contract may maintain an action in court to recover under its terms. *1560 But even if the respondent's contention in this respect were true, the evidence in this proceeding is not such that we can hold that petitioner's liability as a transferee has been established.
Under section 280 of the Revenue Act of 1926 the burden of proof of liability is on the respondent. Section 602 of the Revenue Act of 1928. For the reasons already stated, it is our opinion that the respondent has failed to sustain that burden.
In view of our conclusion, no discussion of any other question raised by the pleadings and the briefs in this proceeding is necessary.
Judgment of no transferee liability will be entered.