*1196 Held, on the record petitioner is not proven to be liable as a transferee.
*1047 This proceeding was brought to redetermine the liability of the petitioner as transferee for a deficiency in income and profits taxes asserted against The Crawford Hill Coal Company for the fiscal year ending March 31, 1919, in the sum of $21,721.33.
The petitioner raises the following issues:
(1) Whether the statute of limitations bars the assessment and collection of the alleged deficiency.
(2) Whether the petitioner is liable as transferee of the assets of The Crawford Hill Coal Company for the payment of the tax, or any part thereof, imposed on that company.
(3) Whether The Crawford Hill Coal Company and The Crabapple Coal Company were affiliated during the fiscal year ending March 31, 1919.
(4) Whether The Crawford Hill Coal Company was entitled to special assessment for the said fiscal year under the provisions of sections 327 and 328 of the Revenue Act of 1918.
*1048 FINDINGS OF FACT.
The petitioner was incorporated July 31, 1918, under*1197 the laws of the State of Delaware, with its place of business at Cleveland, Ohio. Its original corporate name was The Crabapple Coal Company, but it was subsequently changed to The Warner Collieries Company of Delaware. Its officers were W. H. Warner, president; Whitney Warner, vice president and treasurer; C. H. Judkins, secretary; and the said three officers and Hoyt L. Warner, E. L. Thrower, K. B. Whitworth and L. W. Hart, directors. The petitioner owns coal acreage and produces and sells bituminous coal.
The Crawford Hill Coal Company was incorporated under the laws of the State of Ohio on December 1, 1916. It was engaged in producing and selling bituminous coal. On March 31, 1919, and on October 30, 1919, its officers were W. H. Warner, president; Whitney Warner, vice president and treasurer; K. B. Whitworth, secretary; and its board of directors consisted of those officers and Hoyt L. Warner and E. L. Thrower.
W. H. Warner & Company, a partnership composed of W. H. Warner and his two sons, Whitney Warner and Hoyt L. Warner, organized both the petitioner and The Crawford Hill Coal Company.
The stockholders of the two corporations on the dates indicated were as follows: *1198
| Shares held 9/5/18 | Shares held 3/31/19 | ||
| Stockholders | Crawford Hill | ||
| Coal Co. | Crabapple Coal Co. | Crawford Hill Coal Co. | |
| W. H. Warner | 250 | 2,739 1/2 | 250 |
| Whitney Warner | 150 | 1,664 1/2 | 150 |
| H. L. Warner | 100 | 1,110 | 100 |
| K. B. Whitworth | 10 | 1 | 10 |
| L. W. Hart | 10 | 1 | 10 |
| Others 1 | 380 | 1,722 | 380 |
| Total | 900 | 7,238 | 900 |
| Shares held | ||||
| 3/31/19 | Percentage shares held 9/5/18 | Percentage shares held 3/31/19 | ||
| Crabapple | ||||
| Coal Co. | Crawford Hill | Crabapple | Crawford | Crabapple |
| Coal Co. | Coal Co. | Hill Coal Co. | Coal co. | |
| 2,718 1/2 | 27.77 | 37.85 | 27.77 | 37.56 |
| 1,631 | 16.66 | 23.00 | 16.66 | 22.53 |
| 1,087 1/2 | 11.11 | 15.34 | 11.11 | 15.02 |
| 1 | 1.11 | .01 | 1.11 | .01 |
| 1 | 1.11 | .01 | 1.11 | .01 |
| 1,799 | 42.22 | 23.79 | 42.22 | 24.86 |
| 7,238 | 100 | 100 | 100 | 100 |
The common and preferred stock carried equal voting rights.
On or about August 12, 1919, The Crawford Hill Coal Company filed a consolidated income and profits tax return for itself and the petitioner as affiliated corporations for the*1199 fiscal year ending March 31, 1919. The petitioner had no taxable income, but its operating expenses were included in the consolidated income return. No segregation was made of such expense items, but the combined totals were set forth in detail. The schedules attached to such return reflected *1049 the assets and liabilities of each corporation as of March 31, 1919. Among the assets of The Crawford Hill Coal Company were Liberty bonds listed at $80,000, and its only liabilities were accounts payable amounting to $11,503.02.
On October 30, 1919, the petitioner and The Crawford Hill Coal Company executed an agreement, from which the following excerpts are taken:
ARTICLE A
ON BEHALF OF THE SELLER
1. The Seller hereby agrees to sell, convey, grant, assign, transfer and set over unto the Purchaser all its property and assets, and so far as this instrument may operate as an instrument of sale, conveyance, assignment and transfer, does hereby sell, convey, grant, assign, transfer and set over unto the Purchaser, all its property and assets, of whatsoever kind, nature and description, real, personal and mixed, wheresoever the same may be situate.
2. Said Seller hereby*1200 agrees that as soon as practicable and convenient after the full performance of this contract, it will proceed to dissolve, in accordance with the laws of the State of Ohio for such cases made and provided.
ARTICLE B
ON BEHALF OF THE PURCHASER
1. Said Purchaser hereby agrees to accept, and so far as this instrument may operate as a sale, conveyance, assignment and transfer, does hereby accept, the property and assets mentioned in Article A, subdivision 1 hereof.
2. Said Purchaser hereby assumes and agrees to perform any and all contracts, leases and agreements of whatsoever kind, nature and description, entered into by said Seller prior to June 30, 1919, which have not been completely performed, and to indemnify and save harmless said Seller from any and all claims, demands and actions in any manner arising out of such contracts, leases and agreements, and from all loss, cost, damage and expense in connection therewith.
3. Said Purchaser hereby assumes and agrees to pay and satisfy any and all obligations and liabilities of whatsoever kind, vature or description, owed or incurred by said Seller on or before June 30, 1919, and to indemnify and save harmless said Seller*1201 from any and all claims, demands and actions in any manner arising out of any obligations and liabilities asserted against said Seller, and from all loss, cost damage and expense in connection therewith.
4. Said Purchaser hereby agrees to pay from time to time to said Seller, on demand, such amounts of money as may be required by said Seller for the purpose of meeting such reasonable and necessary expense and liabilities as said Seller may incur in the performance of this agreement, in the maintenance of its corporate entity and in its dissolution.
5. Said Purchaser hereby agrees to issue and deliver to said Seller, or its nominees, at Purchaser's principal office in the City of Wilmington, Delaware, a certificate or certificates evidencing the ownership by said Seller, or by said nominees, of forty-five hundred (4500) shares of said Purchaser's common stock without nominal or par value.
*1050 ARTICLE C
MUTUAL AGREEMENTS
1. The Seller and the Purchaser hereby mutually agree that this agreement is subject to the approval of the shareholders of the Seller, as provided in Section 8711 of the General Code of Ohio, and that in the event of such approval, it shall*1202 take effect and be operative as of the 30th day of June, 1919.
2. The Seller and the purchaser hereby mutually agree that each will promptly execute and deliver such other and further documents and instruments as may be necessary fully to carry out the terms of this agreement.
3. The Seller and the Purchaser hereby mutually agree that in the handling of the property and assets mentioned in Article A, subdivision 1 hereof, and in the conduct of any and all business transacted by the Seller during the period from June 30, 1919, up to and including the date when the Purchaser may actually take over the said property and assets, said Seller shall, in pursuance of the informal agreement between the parties hereto to the effect that the property and assets hereby sold should be transferred as of June 30, 1919, at the close of business, be deemed in all respects to have acted for, and on account of said Purchaser, and said Purchaser shall indemnify and save said Seller harmless from any and all claims, demands and actions arising in any manner out of the handling of said property and assets and the conduct of said business during said period, and from all loss, cost, damage and expense*1203 in connection therewith.
4. It is mutually understood that Purchaser is now in process of changing its corporate name from "The Crabapple Coal Company" to "The Warner Collieries Company".
5. The Seller and the Purchaser hereby mutually agree that this agreement contains all the representations made by either party hereto to the other.
In April, 1921, The Crawford Hill Coal Company was dissolved and a certificate of such dissolution was filed with the Secretary of State of Ohio on April 26, 1921.
At the request of the respondent's agent the petitioner submitted to him a copy of the agreement of October 30, 1919, between The Crawford Hill Coal Company and the petitioner.
The Crawford Hill Coal Company filed corporation income and profits tax returns for the fiscal years ending March 31, 1920, and March 31, 1921, and for the period from April 1 to April 26, 1921, inclusive. On the return for the period from April 1 to April 26, 1921, appears the following notation:
This company was taken over by The Warner Collieries Company as of April 1, 1919, and had no income in the period April 1, 1921 to April 26, 1921, inclusive. On April 26, 1921 The Crawford Hill Coal Company*1204 was dissolved. This is its final return.
The entire income of The Crawford Hill Coal Company after April 1, 1919, was included in the tax return of the petitioner for the fiscal year ending March 31, 1920. The books of the two companies were combined as of the beginning of that fiscal year.
*1051 A letter dated April 18, 1924, was mailed by the respondent to The Crawford Hill Coal Company, notifying it of an additional tax for the fiscal year ending March 31, 1919, and requesting a waiver in case it desired to appeal from the respondent's conclusions. Such waiver, dated April 25, 1924, was signed by "The Crawford Hill Coal Company, by K. B. Whitworth, secretary," bore the corporate seal of the said corporation, and was effective one year after the expiration of the statutory period of limitations. Whitworth signed the waiver without instructions from anyone and with no investigation as to his right to sign as such secretary.
In June, 1924, the respondent was informed by letter that the petitioner was successor to The Crawford Hill Coal Company.
On April 7, 1925, the petitioner executed a waiver extending the period for making assessment to December 31, 1925, in*1205 response to a request therefor from the respondent.
In response to a request by the respondent a waiver dated December 7, 1925, was executed by the petitioner as "successor, The Crawford Hill Coal Company, taxpayer, by K. B. Whitworth, treasurer," and extended the period for making assessment to December 31, 1926. A similar waiver, dated October 29, 1926, was likewise executed to extend the period for assessment to December 31, 1927. All waivers subsequent to that of April 25, 1924, were executed by K. B. Whitworth without instructions or investigation by him. The income-tax returns of The Crawford Hill Coal Company and the petitioner were prepared under the supervision of K. B. Whitworth. A refund claim on behalf of The Crawford Hill Coal Company and The Crabapple Coal Company was signed by him as secretary-assistant treasurer of The Crawford Hill Coal Company and assistant treasurer of The Crabapple Coal Company. A protest filed with the respondent by the petitioner on April 18, 1924, was signed by the petitioner as successor to The Crawford Hill Coal Company "by K. B. Whitworth, secretary."
On December 10, 1927, the respondent notified the petitioner of its liability under*1206 section 280 of the Revenue Act of 1926. On that date The Crawford Hill Coal Company had no assets or property whatever, being then dissolved.
The members of the partnership of W. H. Warner & Company had been in the coal business for many years. The partnership was extensively interested in a number of operating companies, for most of which it acted as exclusive sales agent. It served as such for the petitioner and The Crawford Hill Coal Company. Both corporations also were managed and operated by W. H. Warner & Company. It filled its whole orders indiscriminately from the mines of both producers, who were given a preference over other operating companies *1052 in the allocation of orders. The partnership furnished a general office for The Crawford Hill Coal Company, kept its books, purchased mine supplies for it, billed and collected its coal accounts and guaranteed credits on all such accounts. For such services W. H. Warner & Company received 10 cents per ton on all coal produced. That amount was less than one-half the nominal rate for administrative expenses for companies of the size of The Crawford Hill Coal Company and the petitioner. By reason of its ability*1207 to buy in large quantities, the partnership secured supplies for The Crawford Hill Coal Company and the petitioner at 10 per cent under the usual prices.
During the year under consideration the Fuel Administration regulations permitted to coal producers the addition of 15 cents per ton for selling expenses alone. That rate was inapplicable to the petitioner and The Crawford Hill Coal Company because of their relationship to the partnership of W. H. Warner & Company.
OPINION.
VAN FOSSAN: The first issue relates to the statute of limitations. The petitioner asserts that the waivers of April 25, 1924, April 7, 1925 December 7, 1925, and October 29, 1926, executed on behalf of The Crawford Hill Coal Company were not valid. But as a condition precedent to the question of validity of the waivers we must determine whether or not such an income-tax return was made by The Crawford Hill Coal Company as started the tolling of the statute.
The respondent contends that the consolidated return filed by "The Crawford Hill Coal Co., consolidated with The Crabapple Coal Co." for the fiscal year ending March 31, 1919, did not set forth separately the income and deductions of the two corporations, *1208 or either of them, as required by section 239 of the Revenue Act of 1918, which provided that every corporation should "make a return, stating specifically the items of its gross income and the deductions and credits allowed by this Title." Every return must show facts upon which an assessment for the taxable period can be made. ; ; . Where such information is given the statute begins to run. In the case of consolidated returns we have held that they must be filed in good faith and must make a substantial revelation of the gross income and deductions separately for the constituent members of the affiliated group. ; ; affd., ; *1053 ; *1209 . If they do not do so they are not the returns contemplated by the statute and hence do not start the running of the statute of limitations. ; , reversing .
The return in question sets forth only the income, deductions and credits of both corporations combined. Only the balance sheets reflecting the assets and liabilities of each corporation as of March 31, 1919, were included in the return. Such information is not sufficient basis for the assessment of tax. Therefore, the statute of limitations does not bar the assessment of the tax against The Crawford Hill Coal Company.
The second issue presents the question of the liability of the petitioner as transferee of the assets of The Crawford Hill Coal Company. Section 602 of the Revenue Act of 1928 imposes upon the respondent the burden of proof of showing that the petitioner is liable as such transferee.
The assets of The Crawford Hill Coal Company were transferred to petitioner under the terms*1210 of the agreement of October 30, 1919, as of June 30, 1919. The record contains no enumeration or proof of the value of either the assets conveyed to petitioner nor of the liabilities assumed by it at June 30, 1919, the time of transfer. There is evidence that on March 31, 1919, the transferor possessed Liberty bonds in amount of $80,000 and had liabilities in the amount of $11,503.02, but there is no evidence that at June 30, 1919, it still owned such bonds and transferred them to petitioner; nor is there any evidence whether the amount of its liabilities increased or diminished between March 31 and June 30. We know only that petitioner received assets of an unproved value and assumed liabilities of an unproved amount. On this state of the record we must hold that respondent has not sustained the burden of proof placed on him by the statute. See ; . Cf. .
It becomes unnecessary to consider the issue of affiliation, but we are constrained to say that the case of *1211 , is determinative thereof. Under the decision of the United States Supreme Court in that case it is apparent that the petitioner and The Crawford Hill Coal Company are not entitled to affiliation.
Under our decision above the question of special assessment becomes moot.
Decision will be entered for the petitioner.
Footnotes
1. Others holding stock in the Crawford Hill Coal Company held no stock in Crabapple Coal Companyvice versa.↩