Coca-Cola Bottling Co. of Tucson v. Comm'r of Internal Revenue, Docket No. 84587.

• Decision Date: 02 March 1962
• Docket Number: Docket No. 84587.
• Citation: 37 T.C. 1006
• Parties: COCA-COLA BOTTLING COMPANY OF TUCSON, INC., PETITIONER, V. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.
• Court: U.S. Tax Court

37 T.C. 1006

COCA-COLA BOTTLING COMPANY OF TUCSON, INC., PETITIONER, V. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

Docket No. 84587.

Tax Court of the United States.

Filed March 2, 1962.

Scott P. Crampton, Esq., Gerald Jones, Esq., and A. O. Johnson, Esq., for the petitioner.

James Q. Smith, Esq., for the respondent.

1. Held, that petitioner is liable as a transferee of property of Crystal Coca-Cola Bottling Co. (dissolved), for unpaid deficiencies in the latter's income and excess profits taxes for the taxable periods involved, together with interest thereon; and that petitioner's liability as such transferee may be enforced by the Commissioner in the present proceeding, under section 311(a) of the 1939 Code and section 6901(a) of the 1954 Code.

2. Held, further, that whatever petitioner's contractual rights to indemnification from a former stockholder of Crystal may be, the Government is not required, in collecting its revenue, either to litigate such rights or to collect from such third person.

PIERCE, Judge:

The respondent determined that petitioner is liable as a transferee of assets of Crystal Coca-Cola Bottling Co. (dissolved), Tucson, Arizona, for the following deficiencies (together with interest thereon) which he determined in the income and excess profits taxes of the last-named company:

+----------------------------------------------------------+
                ¦Taxable year   ¦Taxes involved                 ¦Deficiency¦
                +---------------+-------------------------------+----------¦
                ¦1951           ¦Income and excess profits taxes¦$27,628.40¦
                +---------------+-------------------------------+----------¦
                ¦1952           ¦Income and excess profits taxes¦29,175.91 ¦
                +---------------+-------------------------------+----------¦
                ¦1953           ¦Income and excess profits taxes¦26,421.23 ¦
                +---------------+-------------------------------+----------¦
                ¦1954           ¦Income tax                     ¦14,673.66 ¦
                +---------------+-------------------------------+----------¦
                ¦1/1 to 12/31/55¦Income tax                     ¦19,158.26 ¦
                +---------------+-------------------------------+----------¦
                ¦Total          ¦                               ¦117,057.46¦
                +----------------------------------------------------------+
                

The sole issue for decision is whether the petitioner is liable as such transferee.

All other issues raised by the pleadings have been eliminated. The parties have filed a written agreement which specifies how the amounts of the determined deficiencies and the amount of petitioner's liability as transferee shall be adjusted and computed, if petitioner is held to be liable as such transferee. Also, the petitioner has conceded on brief, that if petitioner is liable as such transferee, assessment against it of the amount of its liability as such transferee, is not barred by the statute of limitations.

FINDINGS OF FACT.

Most of the facts have been stipulated. The written and oral stipulations of fact, and all exhibits identified therein, are incorporated herein by reference.

The petitioner, Coca-Cola Bottling Company of Tucson, Inc., is an Arizona corporation which was incorporated on or about October 21, 1955. Its principal place of business is in Tucson, Arizona; and it is there engaged principally in the business of bottling and distributing beverages. This is the corporation with respect to which the transferee liability here involved was determined.

Crystal Coca-Cola Bottling Co. (dissolved)— hereinafter referred to as Crystal— was an Arizona corporation which was incorporated on or about January 1, 1951. Prior to November 1, 1955, it was engaged in the business of bottling and distributing beverages, at the address in Tucson which petitioner now uses. It filed its corporate income tax returns for all taxable periods here involved, with the collector or district director of internal revenue for the district of Arizona. This is the corporation with respect to which the tax deficiencies here involved were determined.

At all pertinent times prior to November 1, 1955, all issued and outstanding shares of the capital stock of Crystal, consisting of 500 shares of common stock, were owned by George Martin (hereinafter referred to as Martin); and the same were held either in his name or in the names of his nominees. Martin was the president of the corporation.

Under the date of July 23, 1955, Martin and two other individuals named Samual A. Gersten and Lawrence D. Mayer, executed a written agreement relative to the sale by Martin of all his said shares of stock of Crystal; and thereafter under date of October 26, 1955, Martin and these same two individuals executed a supplemental memorandum agreement, under which certain amendments were made to the original agreement. Said agreement, as amended, reflected the fact that Gersten and Mayer were in the process of organizing a new corporation to be known as Coca-Cola Bottling Company of Tucson, Inc.(the present petitioner); and that such new corporation would, after its incorporation, be ‘the Buyer’ of all of Martin's said shares of stock of Crystal. It provided in part, as follows:

It is agreed that the intent of this agreement is that said new company (petitioner) is the Buyer of said stock of the old company (Crystal) * * * and that the said Gersten and Mayer are parties to this agreement only to the extent of their personal liability for the obligations herein undertaken by the said new company in excess of One Million Dollars ($1,000,000) and that the said Gersten and Mayer are responsible for, and covenant and agree to form, the new company which shall provide for authorized capital stock in the amount of $3,000,000, and in which said Gersten and Mayer shall be the holders (although in trust) of the issued and outstanding shares, and that said Gersten and Mayer are responsible for the closing details of this agreement as herein prescribed.

Said agreement, as amended, also provided in substance: That the closing date for the transaction therein mentioned, would be November 1, 1955; that Martin would at that time transfer to the new company (petitioner) all the issued and outstanding shares of the capital stock of Crystal (being 500 shares), in consideration for the new company's installment promissory note for $1,450,000, which would be secured by deposit in escrow of all shares of stock of both the old and new companies; that thereupon, a new certificate for said shares of Crystal's stock would be issued to and in the name of the new company; and that the existing officers and directors of Crystal would then resign and be replaced by new officers and directors.

The agreement, as amended, further provided:

The purchaser (the present petitioner) shall have the right to liquidate and dissolve the corporate structure of the old company and to obtain a release of the collateral security pledge of the 500 shares of capital stock of the old company after November 1, 1955, solely UPON CONDITION that all of the assets of the old company, including all Bottler's franchises are merged and transferred into the new company with due diligence and in accordance with the statutes of the State of Arizona in such cases made and provided.

And also included in the agreement, as amended, were the following provisions:

Seller (Martin) agrees to save, indemnify and hold harmless both the Buyer and the said old and new corporations against any and all claims for income taxes or any other kind of tax, interest and penalties claimed by or due to the United States or any state or municipality by the old corporation and, further, against any and all claims of any description or nature against the old corporation or against the real property and assets sold hereunder, arising from or by reason of any matters or thing occurring prior to the date of closing. Any such claim or liability paid by Buyer may, at Buyer's option, be either collected from Seller or deducted from payments due hereunder, PROVIDED, HOWEVER, Seller shall first have the right to contest, dispute and, if necessary, litigate any such claim, at Seller's sole expense, and in the name of the old company or the new company, so long as the operation of the business and the interests of Buyer are not prejudiced or jeopardized thereby.

Seller further guarantees payment of all outstanding accounts receivable as of date of settlement.

Crystal was not a party either to the above-mentioned agreement or to the above-mentioned memorandum agreement, both of which were executed only by Martin, Gersten, and Mayer.

On about October 21, 1955, petitioner was incorporated. Gersten and Mayer were the incorporations; and they, together with Boyd M. Morse, an attorney, were elected and qualified as the directors. Gersten was president; Mayer was vice president and treasurer; and Morse was secretary. The authorized capital stock of petitioner was $3 million divided into 3,000 common shares; but only 1,000 shares of the same were issued, being 500 shares to Gersten and 500 shares to Mayer, as the sole stockholders.

The directors of petitioner, at their first meeting on October 22, 1955, gave consideration to the above-mentioned agreement on July 23, 1955, between Martin, Gersten, and Mayer, in which petitioner was mentioned as the ‘Buyer’; and the directors then adopted the following resolution:

RESOLVED, That this corporation (petitioner) adopt and ratify as its own contract the said agreement dated July 23, 1955, and that the officers of the corporation be authorized to carry out the terms of said agreement to the consummation thereof * * *

Also, at a special meeting of petitioner's board of directors held on October 31, 1955, said agreement, as amended and modified by the memorandum agreement of October 26, 1955, was again ‘ratified, approved and adopted as binding’ upon petitioner; and the corporate officers were authorized and directed to proceed with the purchase of Crystal's stock, by executing and delivering to Martin the...