*130 Decision will be entered for the petitioner.
On December 19, 1934, a voluntary petition for reorganization of petitioner was filed under section 77B of the Bankruptcy Act. The trustee, under order of the court, took over and operated the business and properties of debtor corporation and was discharged upon termination of the proceedings, February 10, 1936, without having filed an income tax return or having paid income tax for 1935. Held, that petitioner was not liable to tax on income derived from the operation of such properties in 1935 nor to an addition to tax, under section 291 of the Revenue Act of 1934, for failure to file an income tax return for said year. Reinecke v. Gardner, 277 U.S. 239">277 U.S. 239.
*184 The respondent has determined a deficiency in income tax against the petitioner for the year 1935 in the amount of $ 1,598.57 and has further determined, under section 291 of the Revenue Act of 1934, an addition thereto equal to 25 percent of the deficiency for failure on the *131 part of the petitioner to file an income tax return for 1935 within the time prescribed by the statute.
Throughout the year 1935 the property and business of petitioner were operated by a trustee in proceedings under section 77B of the *185 Bankruptcy Act, and the primary question here is whether the income from such property in 1935 was the income of the petitioner.
The facts are as shown by stipulation of the parties and by certain documents placed in evidence. The facts stipulated are found as stipulated and those facts hereinafter set forth in our findings of fact which are not from the stipulation are from the documents in evidence.
FINDINGS OF FACT.
The petitioner, an Illinois corporation, was organized in 1933 for the purpose of acquiring and operating the property located at 415-427 South Taylor Avenue, Oak Park. Illinois, consisting of the land and a three-story and English basement building containing 51 apartments. The property in question was acquired by petitioner and has since been operated as an apartment property.
On or prior to December 19, 1934, a petition for reorganization under section 77B of the Bankruptcy Act was filed by the petitioner in the District*132 Court of the United States for the Northern District of Illinois. At the time of filing the petition the property of the petitioner was subject to a bond issue to the Chicago Title & Trust Co., as trustee, securing 697 bonds aggregating $ 325,000 in principal, with interest thereon at the rate of 6 1/2 percent per annum; to the lien under a junior trust deed securing $ 40,000 in principal, of which $ 12,500 remained unpaid, with interest thereon at the rate of 6 percent per annum; to various mechanics' lien claims; and to the lien of judgments.
On December 19, 1934, the court entered an order finding that the petition had been properly filed and appointing Ralph W. Skillin as trustee. The trustee was authorized to operate the property and business of the debtor, the petitioner corporation, and to "have full power and authority to do all things necessary or convenient in the operation thereof, and the maintenance and preservation of said estate." It was provided that he should have all title to the said estate and all powers of a trustee appointed pursuant to section 77B and consistently with said section the same powers as an equity receiver, subject at all times, however, to the*133 control of the court. The said trustee was authorized to "make payments from time to time on account of all taxes due or to become due on debtor's property, as well as all state franchise and sales taxes and all federal taxes or other impositions necessary, by state or federal law, to maintain its corporate existence." Thirty days was fixed as a reasonable time within which claims or interests of creditors and stockholders might be filed and the debtor was directed to send forthwith notices to all creditors stating such fact and that no claim or interest might thereafter participate except on order for cause shown. Provision was *186 also made for the sending of notices to creditors and stockholders of hearing on the plan of reorganization when submitted and 90 days was fixed as a reasonable time for acceptance of the plan. All creditors, stockholders, and other persons were enjoined and restrained, under further order of the court, from instituting, prosecuting, or continuing "any suit at law or in equity in any court against debtor or its property, and from taking possession of, or in any manner interfering with debtor's property, or any part thereof." Provision was also*134 made that the trustee should pay from the estate in his hands the necessary expenses incurred in carrying out the said order of December 19, 1934. The court reserved jurisdiction to limit by other order the "debtor or any other person in any way" as might be "consistent with and in pursuance of the provisions of said Section 77-B."
In December of 1934 Ralph W. Skillin qualified as trustee and assumed and entered upon the duties and powers prescribed by the statute under which he was appointed and by the court's order of December 19.
On or about May 28, 1935, a plan of reorganization was submitted by a committee of petitioner's bondholders and on July 12, 1935, the court entered a decree confirming the said plan of reorganization. The plan contemplated that all assets of the debtor should be retained by it or conveyed and transferred to a new corporation, "in either case free and clear of all claims of stockholders and creditors of debtor, except as otherwise provided in the Plan." The basis for the issuance of the common stock in the reorganized or new corporation and for the treatment of claims or interests was prescribed by the plan. Provision was made that all costs of administration*135 and other allowances should be paid in cash to the extent cash should be available, and that such costs or allowances as should not be so paid in cash should be evidenced and secured by certificates of indebtedness to be issued by the reorganized corporation.
In the decree of July 12 confirming the plan all claims and interests theretofore filed, and as evidenced by a report previously filed, were allowed, reservation being made, however, for the subsequent approval by the court of the amount of the claim of the Chicago Title & Trust Co. as trustee. The several parties in interest were ordered and directed to execute and deliver "such deeds, bills of sale, assignments, releases and other documents as may be necessary to effectuate the purposes and objects of the plan of reorganization." The trustee was authorized to pay all necessary expenses requisite "for the formation and organization of the new corporation, as provided in said plan of reorganization, and all other necessary expense for carrying into effect, said plan of reorganization." The order of confirmation also prescribed that upon confirmation of all steps in the proposed reorganization *187 the reorganized corporation*136 should take title "to all of the property of the debtor, free and clear of all claims, liens and encumbrances against the debtor and any and all of its properties of every kind, character and description," except as otherwise provided in the said plan or specifically excepted. The holders of any and all claims against the debtor or its property were to be forever enjoined from commencing and prosecuting any proceeding against the debtor or any of its property based on such claims or interests and all parties claiming allowances of fees or expenses in connection with the reorganization were directed to file their petitions for such allowances on or before July 12, 1935.
On February 10, 1936, a report designated "Report of Debtor Corporation" was filed in the above described proceedings. The report stated that the plan of reorganization had been carried out; that the debtor's articles of incorporation had been amended so that its authorized capital stock consisted of 3,611 shares of common stock without par value; that three directors, selected by the court, had been elected as directors of the corporation; that certificates of stock had been issued to each depositor of bonds under*137 the plan: that provision had been made for the issuance, in the future, of certain certificates of stock to those entitled thereto; that certain shares of stock had been issued pursuant to the plan on two claims under second mortgage bonds; that the judgment lien had been satisfied; that no claims of unsecured creditors had been filed and allowed; that the mechanics' liens filed and allowed were satisfied by the payment of 50 percent in cash and 50 percent in stock; that the certificates evidencing all of its outstanding shares of stock prior to the reorganization had been canceled and 295.03 shares of new stock issued in lieu thereof; that the trustee had accumulated sufficient cash to pay all fees, compensations, and disbursements and the issuance of any certificate of indebtedness was unnecessary; that the trustee had filed his final report and account and the same had been approved by the court; that the balance of moneys remaining in the trustee's hands had been paid to the debtor corporation; and, finally, that the trustee had delivered to the debtor corporation releases of the liens securing first mortgage and second mortgage bonds and the said deeds had been recorded.
On the*138 same date, February 10, 1936, the court received and approved the above report of the debtor corporation and entered its final decree in the proceedings. The court found that the plan of reorganization previously confirmed had been carried out and consummated under and in accordance with the provisions of section 77B of the Bankruptcy Act, as amended and supplemented, and under and in accordance with the order of the court, and, among other *188 things, ordered, adjudged, and decreed that 415 South Taylor Building Corporation be forever discharged:
* * * from each and all of its debts and liabilities of whatsoever kind or nature, excepting such debts as are by law excepted, and except as provided in and by said plan of reorganization.
* * * *
That the debtor be, and it is hereby, restored to and given full and unqualified possession and control of its property and estate and authorized and empowered to manage, operate and conduct its business and affairs, all without being subject to the jurisdiction, instruction, control and restriction of this Court.
That the above-entitled proceedings be, and the same are hereby, finally and completely terminated and closed.
On April 3, 1935, *139 Robert H. Jackson, the Assistant General Counsel of the Treasury Department, for the Bureau of Internal Revenue, addressed a letter to J. Kentner Elliott, attorney for the debtor corporation in the reorganization proceedings, acknowledging receipt of information indicating that the above described petition for reorganization had been filed and requesting the following information by mail:
1. Two copies each of the petition and answer and of the plan of reorganization;
2. The names and addresses of the trustees, if any;
3. Copy of the order of the court classifying creditors and stockholders and fixing the last date on which claims might be filed or evidenced; and
4. Any other information in regard to the proceeding and pertinent to the subject matter under consideration.
Subsequent thereto and on the dates indicated, the following copies of petitions, reports, orders, etc., filed and entered in the said reorganization proceedings were received by the attorney for the respondent herein:1. Order entered June 24, 1935, approving trustee's report from December 11, 1934, to June 15, 1935. Received July 5, 1935.
2. Order entered June 7, 1935, directing the bondholders' committee*140 to mail to its bondholders copies of notices of plan of reorganization. Received June 26, 1935.
3. Decree confirming plan of reorganization dated July 12, 1935. Received July 25, 1935.
4. Petition for attorney's fees of J. Kentner Elliott filed July 19, 1935. Received July 26, 1935.
5. Petition of Chicago Title & Trust Company in support of claim filed by it. Filed July 19, 1935. Received July 26, 1935.
6. Order entered February 10, 1936, directing bondholders protective committee to deliver to debtor corporation all first mortgage bonds and interest coupons deposited with it. Date of receipt not known.
7. Order dated February 10, 1936, directing the trustee to surrender and deliver to debtor corporation possession of the real estate and property owned by the debtor corporation. Date of receipt not shown.
*189 The Secretary of the Treasury did not accept the plan of reorganization, nor did he certify to the court the acceptance of a lesser amount of the income taxes determined by the respondent to be owing by the petitioner for the year 1935, as set forth in the notice of deficiency. Neither the United States nor any collector of internal revenue nor the respondent *141 filed any petition or claim in the reorganization proceedings for the deficiency or penalty or for any claimed amount of taxes.
Neither prior to his discharge on February 10, 1936, nor at any time thereafter did the trustee file an income tax return as such trustee or otherwise for the petitioner corporation for the year 1935 and no provision for payment of the tax herein was made in any order of the court in the said proceedings.
On July 21, 1936, a return was filed by the petitioner for the calendar year 1935 with the collector of internal revenue for the first district of Illinois at Chicago, reporting no income and no tax. The return was made on Form 1120 -- "Corporation Income and Excess-Profits Tax Return" -- but contained no statements of gross income, deductions or credits. It carried only a typed statement on its face to the effect that the petitioner during 1935 was in course of reorganization under section 77B of the Bankruptcy Act and by reason thereof no operation was had by it until January 3, 1936.
Under date of June 21, 1941, the respondent gave notice to petitioner of his determination of the deficiency and addition to tax herein. Statements filed in the reorganization*142 proceedings by the trustee on January 1, June 15, and October 15, 1935 showed total receipts and total disbursements by the trustee in the amounts of $ 34,240.54 and $ 35,226.44, respectively. In making his determination, the respondent treated the receipts so shown as gross income and, after deducting $ 17,600.13 of the trustee's disbursements as operating expenses and $ 5,114.43 as depreciation allowable, arrived at adjusted net income in the amount of $ 11,625.98. The disbursements not allowed, which totaled $ 18,626.32, were shown as reorganization expenses such as committee services and expenses, attorney fees, printing and mailing costs, settlement of lien claims, trustee fees, and the like. These latter items were determined by the respondent not to "represent ordinary operating expenses."
OPINION.
The principal question here is whether or not the income realized from the operation of the apartment building at 415 South Taylor Avenue, Oak Park Illinois, during the year 1935 was the income of the petitioner within the meaning of the Revenue Act of 1934. There is no question, and the parties so agree, that the *190 petitioner was and remained the same corporate entity*143 before, during, and after the reorganization proceedings. At or shortly after its organization in 1933 the petitioner acquired the apartment property which produced the income here in question and, except for a period during which Skillin held the property as trustee in the reorganization proceedings under section 77B of the Bankruptcy Act, 48 Stat. 912, has continued as the owner and possessor of the said property. It is the contention of the petitioner that there is and was no legal requirement upon it to make an income tax return for 1935 and to pay the tax thereon; that the claim for income tax for that period must have been asserted in the reorganization proceedings; that the claim is and was a claim against the trustee and not a claim against the petitioner; and that, no claim for the said taxes having been made by the respondent prior to entry by the court of the order discharging the trustee and closing the proceedings, allowance of any claim for the said taxes was thereafter barred.
The respondent, to the contrary, contends that the pendency of the reorganization proceedings under section 77B, supra, and the appointment of the trustee to operate petitioner's business*144 did not relieve petitioner of primary liability for the tax.
Extensive briefs have been filed and numerous authorities have been cited, particularly by the petitioner, as support for their contentions. Most of the cases cited, however, have to do with claims existing at the time bankruptcy proceedings were instituted and do not cover or relate to liability for tax on income realized from the operation of the property during the tenure of the trustee. Much of the discussion and argument for that reason tends to confuse rather than aid in the disposition of the question here.
In section 52 of the Revenue Act of 1934 1*147 it is provided that income tax returns of corporations, the property of which is being operated by receivers, trustees in bankruptcy, or assignees, shall be made by such receivers, trustees, or assignees in the same manner and form as corporations are required to make returns and that any tax due on the basis of such returns shall be collected in the same manner as if from a corporation still having custody and control of its business or property. *191 Section 312 of the act 2 provides that any person acting in a fiduciary capacity shall upon notice to the Commissioner*145 assume the powers, rights, duties, and privileges of the taxpayer until notice is given that the fiduciary capacity has terminated. This latter provision first appeared in the Revenue Act of 1926 as section 281. Explaining this new provision, the Senate Finance Committee advised the Senate that receivers and trustees in bankruptcy were among the fiduciaries specifically in mind. 3 It would seem therefore that Congress intended to eliminate any and all doubt that a trustee in bankruptcy should stand during his trusteeship in the place of the bankrupt in so far as the powers, rights, duties, and privileges of the bankrupt with respect to the reporting and paying of Federal income tax should be concerned. Respondent argues, however, citing ; ; ; and , that the petitioner was at all times the real and beneficial owner of the income involved and the party receiving the economic benefit therefrom; that a trustee in reorganization*146 proceedings in reality and in law only stands in the place and stead of the corporate officers and, "fiduciary capacity" of the trustee in the instant case having been terminated prior to the final date fixed by the statute for the filing of the 1935 income tax return and without such return having been filed, the duty of making the return and of paying the tax thereunder merely shifted from the trustee to the officers of the corporation. In short, it is said that the income throughout and the liability for tax thereon was at all times primarily that of the petitioner corporation.
*148 The argument advanced by the respondent is very persuasive, and in section 271 of the Chandler Act, the current statute dealing with reorganizations such as we have here, it is provided that "all taxes which may become owing to the United States or any State from a receiver or trustee of a debtor * * * shall be assessed against, may be collected from and shall be paid by the debtor or the corporation organized or made use of for effectuating a plan under this *192 chapter." The Chandler Act, however, was not enacted until 1938 and was not made retroactive. The result here therefore is controlled by the statute as it existed previously, and section 77B, supra, under which the trustee herein held and operated the property in question, contained no such provision.
In subsection (c) of section 77B, supra, under which the trustee herein was appointed and from which he derived his powers, it is provided that "every such trustee, upon filing such bond, shall have all the title and shall exercise, subject to the control of the judge and consistently with the provisions of this section, all the powers of a trustee appointed pursuant to section 44 of this Act, and if authorized*149 by the judge, the same powers as those exercised by a receiver in equity to the extent consistent with this section, and, subject to the authorization and control of the judge, the power to operate the business of the debtor during such period, fixed or indefinite, as the judge may from time to time prescribe." In section 70 of the Bankruptcy Act in force and effect during the period here under consideration (sec. 110, ch. 7, title 11, U. S. C. A.), it is provided in part as follows:
The trustee of the estate of a bankrupt, upon his appointment and qualification, and his successor or successors, if he shall have one or more, upon his or their appointment and qualification, shall in turn be vested by operation of law with the title of the bankrupt, as of the date he was adjudged a bankrupt, except in so far as it is to property which is exempt * * *
In , the Supreme Court had occasion to consider and pass upon the liability for income and excess profits taxes under the Revenue Act of 1917 of a trustee in bankruptcy in respect of income derived from the operation of the coal mining properties of the bankrupt. The Court*150 there said:
As under the Bankruptcy Act (11 USCA) the entire property of the bankrupt vested in the trustee, the income in question was not the income of the bankrupt corporation but of the trustee, and was subject to income and excess profits tax only if the statutes authorized the assessment of the tax against him. * * *
It is our opinion therefore that the question here in dispute is not an open question, and we conclude and hold, on authority of , that the primary liability for the tax on the income derived in 1935 from the operation of the apartment property at 415 South Taylor Avenue, Oak Park, Illinois, was that of the trustee and not that of the petitioner. Compare , and , wherein no trustee was appointed but the debtor corporation remained in possession of its property and business and it was held that the said debtor corporation was liable to excess profits tax and capital stock tax respectively.
We do not consider or decide the contention of the petitioner that, by reason*151 of the respondent's failure to make claim for the tax in *193 question in the reorganization proceedings, the order closing the said proceedings and discharging the trustee operates as a bar to any subsequent collection of the said tax from the petitioner. That question would be inherent in a proceeding against the petitioner as transferee, and we do not have a transferee proceeding here. For similar reasons, we do not consider or decide any question relating to the liability of the trustee for the tax under section 3467 of the Revised Statutes because of his failure to pay or to make provisions for the tax prior to his discharge and the transfer of the fiduciary estate to the petitioner.
In the light of the above conclusions it necessarily follows that the respondent's determination of a 25 percent addition to tax because of failure on the part of petitioner to file a return of the above income was also in error.
Decision will be entered for the petitioner.
Footnotes
1. SEC. 52. CORPORATION RETURNS.
Every corporation subject to taxation under this title shall make a return, stating specifically the items of its gross income and the deductions and credits allowed by this title. The return shall be sworn to by the president, vice president, or other principal officer and by the treasurer, assistant treasurer, or chief accounting officer. In cases where receivers, trustees in bankruptcy, or assignees are operating the property or business of coporations, such receivers, trustees, or assignees shall make returns for such corporations in the same manner and form as corporations are required to make returns. Any tax due on the basis of such returns made by receivers, trustees, or assignees shall be collected in the same manner as if collected from the corporations of whose business or property they have custody and control.↩
2. SEC. 312. NOTICE OF FIDUCIARY RELATIONSHIP.
(a) Fiduciary of Taxpayer. -- Upon notice to the Commissioner that any person is acting in a fiduciary capacity such fiduciary shall assume the powers, rights, duties, and privileges of the taxpayer in respect of a tax imposed by this title (except as otherwise specifically provided and except that the tax shall be collected from the estate of the taxpayer), until notice is given that the fiduciary capacity has terminated.
(b) Fiduciary of Transferee. -- Upon notice to the Commissioner that any person is acting in a fiduciary capacity for a person subject to the liability specified in section 311, the fiduciary shall assume, on behalf of such person, the powers, rights, duties, and privileges of such person under such section (except that the liability shall be collected from the estate of such person), until notice is given that the fiduciary capacity has terminated.
(c) Manner of Notice. -- Notice under subsection (a) or (b) shall be given in accordance with regulations prescribed by the Commissioner with the approval of the Secretary.↩
3. Report of Senate Finance Committee on the Internal Revenue Bill of 1926, p. 30.↩