92 T.C. 940 (1989), 17739-82, Home Group v. C.I.R.
|Citation:||92 T.C. 940|
|Opinion Judge:||GERBER, JUDGE:|
|Party Name:||THE HOME GROUP, INC., AS AGENT UNDER THE PROVISIONS OF TREASURY REGULATION SECTION 1.1502-77(d) FOR CITY INVESTING COMPANY AND THE CONSOLIDATED GROUP OF WHICH CITY INVESTING COMPANY WAS THE COMMON PARENT, Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent|
|Attorney:||William L. Goldman, John S. Breckinridge, Jr. and F. Brook Voght, for the petitioner. Daniel A. Guy, Jr. and Maureen Nelson, for the respondent.|
|Judge Panel:||NIMS, CHABOT, PARKER, KORNER, HAMBLEN, COHEN, SWIFT, JACOBS, WRIGHT, PARR, WILLIAMS, WELLS, RUWE, WHALEN, and COLVIN, JJ., agree with this opinion.|
|Case Date:||May 10, 1989|
|Court:||United States Tax Court|
P, in the process of appealing from a decision of this Court, filed an appeal bond for purposes of staying assessment and collection of P's affiliated and consolidated group's redetermined tax deficiency. Sec. 7485(a), I.R.C. 1986. The bond was issued by S, which is otherwise properly authorized as a surety under 31 U.S.C. sec. 9304 (1982). S is also a subsidiary of P and a member of the affiliated group that filed consolidated returns and, as such, is responsible for any finally determined tax deficiency. R objects to the use of S's bond on the ground that it does not represent adequate security because S is already liable for any deficiency.
HELD, the Tax Court has discretionary authority to refuse to accept a surety or a bond proffered by a surety if the bond may not be adequate or appropriate security for eventual collection of any tax deficiency. HELD FURTHER, a surety issuing an appeal bond does not provide adequate security as a surety if said surety is already liable for any tax deficiency. Because S is a member of the taxpayer-affiliated group and, as a result, severally liable for the group's tax deficiency, S is not an acceptable surety and its appeal bond is not adequate security.
This matter is before the Court on respondent's motion to set aside our approval of petitioner's appeal bond. On January 15, 1987, we held that Home Insurance Company (sometimes referred to as Home) and Home Indemnity Company (Indemnity), members of the consolidated group of corporations of which City Investing Company was the common parent, were not entitled to deductions for insurance sales commissions associated with deferred and unearned insurance premiums.  City Investing Co. v. Commissioner, T.C. Memo. 1987-36. In a second opinion we considered disputes arising from differences in the parties' computation of deficiencies under Rule 155.  The Home Group, Inc. v. Commissioner, 91 T.C. 265 (1988). We redetermined the affiliated group's income tax deficiency to be approximately $20,000,000. In the process of appealing these opinions to the United States Court of Appeals for the Second Circuit, petitioner, as agent for Home, Indemnity and the remaining members of the consolidated group, filed an
appeal bond on November 16, 1988, in the amount of $41,949,712  for purposes of staying assessment and collection of the tax deficiency we redetermined. Sec. 7485(a). The bond identifies Home Insurance Company, the same affiliated subsidiary whose deductions are at issue in this case, as the surety. We initially accepted the bond in a routine fashion because Home is an approved surety.
Respondent thereafter filed a motion to have us set aside our approval of petitioner's appeal bond. He argued that Home is incompetent to serve as surety on its own appeal bond under section 7485(a) since it is a member of the consolidated group liable for the tax deficiency.
As a member of the affiliated group of corporations, Home Insurance Company is severally liable for the consolidated tax liability of the entire group. Sec. 1.1502-6(a), Income Tax Regs. Therefore, such total consolidated tax liability, including deficiencies may be collected from Home notwithstanding the allocation of tax liability or other intercompany agreements. Sec. 1.1502-6(c), Income Tax Regs.; Mississippi River & Bonne Terre Ry. v. Commissioner, 39 B.T.A. 995 (1939); Turnbull, Inc. v. Commissioner, 373 F.2d 91 (5th Cir. 1967), cert. denied 389 U.S. 842 (1967); see also H. Lerner, R. Antes, R. Rosen and B. Finkelstein, 1 Federal Income Taxation of Corporations Filing Consolidated Returns, sec. 4.05 (13th ed. 1988). Hence, the issue in this case is whether Home is an acceptable surety for purposes of its own appeal.
Section 7485(a)(1) provides, in part, that in order to stay the assessment and collection of any portion of a deficiency determined by this Court while our decision is pending on appeal, the taxpayer must file ‘ with the Tax Court a bond in a sum fixed by the Tax Court * * * and with surety approved by the Tax Court * * *.‘ See also Rule 192.
Generally, to be an acceptable surety a corporation must satisfy the requirements of 31 U.S.C. section 9304 (1982), a statute of general applicability governing sureties qualified to issue Federal bonds.  Yoke v. Mazzello, 202 F.2d 508, 510-511 (4th Cir. 1953). It provides, in pertinent part, that
‘ When a law of the United States Government [in this case, section 7485(a)(1)] requires or permits a person to give a surety bond through a surety, the person satisfies the law if the surety bond is provided for the person by a corporation‘ that (i) is incorporated under the laws of the United States or a State, the District of Columbia, or a territory or possession of the United States, (ii) may under those laws...
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