Badger Materials, Inc. v. Comm'r of Internal Revenue, Docket Nos. 88818

• Decision Date: 10 July 1963
• Docket Number: 94219.,Docket Nos. 88818,89942-89947
• Citation: 40 T.C. 725
• Parties: BADGER MATERIALS, INC., ET AL.,1 PETITIONERS, V. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT1A
• Court: U.S. Tax Court

40 T.C. 725

BADGER MATERIALS, INC., ET AL.,1 PETITIONERS, V. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT1A

Docket Nos. 88818

89942-89947

94219.

Tax Court of the United States.

Filed July 10, 1963.

W. Wade Boardman, Thomas G. Ragatz, and Charles E. Prieve, for the petitioners.

Vernon R. Balmes, for the respondent.

Petitioner corporation was dissolved on November 4, 1957, under Wisconsin law which provides that upon dissolution the corporation ceases to exist except for suits or other proceedings commenced within 2 years from the date of dissolution. During the 2-year period following dissolution, the corporation's treasurer executed consents purporting to extend the period for assessment of tax deficiencies for the years ended October 31, 1955, and October 31, 1956, to June 30, 1960. An informal conference was held on September 18, 1959, but no further action was taken by either party before the 2-year period for suits and proceedings terminated on November 4, 1959. Respondent issued a notice of deficiency to the corporation on June 2, 1960, and a notice of transferee liability to transferee X on June 15, 1961, both within the period of limitations as purportedly extended. The corporation and the transferee deny the validity of the consents executed after the corporation was dissolved, relying on Wisconsin statutes, and moved to dismiss the proceedings for lack of jurisdiction on the grounds that the assessments of deficiencies and transferee liability are barred by the statute of limitations. Held:

1. No suit or other proceeding was commenced within 2 years to extend the existence of the corporation and, therefore, no one was authorized under Wisconsin law to extend the period of limitations. Ann C. Field, 32 T.C. 187, distinguished.

2. The consents purporting to extend the period of limitations were invalid and the notices of deficiency and transferee liability were untimely.

3. Petitioners are not estopped to deny the validity of the consents.

DAWSON, Judge:

Respondent determined deficiencies in income tax of Badger Materials, Inc., in the amounts of $43,965.07 and $52,221.01 for the taxable years ended October 31, 1955, and October 31, 1956, respectively. Respondent further determined transferee liability against each individual petitioner as a transferee of assets of the corporation.

Petitioners in Docket No. 88818, Badger Materials, Inc., and Docket No. 94219, Arthur Overgaard, whose transferee liability was determined to be in the entire amount of the deficiencies of the corporation as set out above, have moved to dismiss the proceedings against them for lack of jurisdiction. Petitioners, as used hereinafter, will refer only to the movants.

The question to be determined is whether the statute of limitations bars the assessment of the deficiencies and transferee liability against petitioners.

FINDINGS OF FACT

Badger Materials, Inc. (hereinafter referred to as Badger), was incorporated under chapter 180 of the laws of the State of Wisconsin on November 1, 1954. Federal income tax returns of Badger for its taxable years ended October 31, 1955, and October 31, 1956, were filed on April 14, 1956, within a 90-day extension of time, and January 16, 1957, respectively, with the district director of internal revenue, Milwaukee, Wis. (hereinafter referred to as district director).

A resolution and plan for liquidation and dissolution of Badger was adopted at a special meeting of the stockholders on October 31, 1956. A Form 966, statement of intent to liquidate, was filed by Badger on November 26, 1956, with the district director. A statement of intent to dissolve was filed with the secretary of state of Wisconsin on January 14, 1957, and recorded with the register of deeds of Dane County, Wis., on January 17, 1957. At the time of the filing and recording of the statement of intent to dissolve, and at all times relevant herein, the officers of Badger were Frank Mashuda, president, Arthur Overgaard, vice president, and J. A. Gallagher, secretary-treasurer. These three individuals also constituted the board of directors and were the principal stockholders.

During its fiscal year ended October 31, 1957, Badger distributed all of its assets and cash from sales of assets to its stockholders pursuant to the plan for complete liquidation of the corporation, and within 12 months after the adoption of the plan of complete liquidation pursuant to section 337 of the 1954 Code. The final distribution was made on October 29, 1957, at which time Arthur Overgaard (hereinafter referred to as Overgaard), owning 50 shares of capital stock representing 33 1/3 percent of the outstanding stock, received cash and assets in the amount of $239,224.34.

Articles of dissolution were executed by Badger on October 29, 1957, and were filed with the secretary of state of Wisconsin on October 31, 1957, and recorded with the register of deeds for Dane County, Wis., on November 4, 1957. A certificate of dissolution was issued by the secretary of state of Wisconsin on that date.

On December 30, 1957, J. A. Gallagher (hereinafter referred to as Gallagher) signed, as secretary of Badger, the Federal income tax return of Badger for its taxable year ended October 29, 1957. Attached to the return was a statement that Badger had been liquidated and dissolved pursuant to the plan for dissolution adopted by the corporation's shareholders on October 31, 1956, and an analysis of the disposition of fixed assets. Filed with the return and executed by Gallagher as secretary and treasurer of Badger was an application for tentative carryback adjustment (Form 1139). In the application Badger claimed that it realized a new operating loss for the taxable year ended October 29, 1957, in the amount of $20,091.59, which should be allowed as a net operating loss deduction in the taxable year ended October 31, 1955, and that its income tax for that year should be reduced by $10,447.63. (In his informal conference letter dated September 16, 1959, and in the statutory notice of deficiency to Badger, respondent disallowed part of the net operating loss deduction. This disallowance was alleged as error in the petition of Badger.)

In a letter dated November 26, 1958, the district director transmitted a consent Form 872 purporting to extend the period of limitations for the assessment of income tax for the year ended October 31, 1955, to June 30, 1959, to Badger in care of Donald E. Gill & Co. On or about December 29, 1958, Gallagher, designating himself and signing as ‘Treasurer at date of Liquidation,‘ executed the consent in the name of Badger.

In like manner, on or about March 21, 1959, Gallagher executed a second consent Form 872 purporting to extend the period of limitations for the year ended October 31, 1955, to June 30, 1960. Attached to the form, sent to the district director by Donald E. Gill & Co., was a letter signed by John B. White for Gill & Co. which read as follows:

In answer to a request directed by Mr. Vetter dated March 13, 1959, there is enclosed in triplicate Form 872 for Badger Materials, Inc., which has been executed by the taxpayer. This form extends until June 30, 1960 the period for examination of the taxable year ended October 31, 1955.

On June 17, 1959, Badger ‘having been dissolved on October 29, 1957, operating under section 180.787 of Wisconsin Statutes,‘ executed a power of attorney to Donald E. Gill, John B. White, and Rockne G. Flowers empowering them to negotiate income tax matters and to sign petitions, applications, appeals, waivers, relinquishments, and other necessary documents.

Shortly prior to September 1, 1959, Gallagher executed as ‘Treasurer at Date of Liquidation’ a consent Form 872 purporting to extend the period of limitations for the year ended October 31, 1956, to June 30, 1960. Gill & Co. transmitted the executed consent to respondent on September 1, 1959.

Gallagher had custody of the corporate seal of Badger until November 4, 1957. After that time and at the times the consent agreements were executed, all corporate records and the corporate seal were in the possession of Gill & Co.

John B. White, who was a partner in Gill & Co. and who had been furnishing information to the revenue agent making the audit of Badger, asked Gallagher to sign the consent agreements. White discussed the execution of the consents with the accountants of Gallagher and Frank Mashuda, president of Badger. Gallagher did not discuss the consents with the other officers. He ordinarily signed returns and other such instruments while Badger was in existence. Neither Gallagher nor White were lawyers and no legal advice was obtained concerning the authority of Gallagher to execute the consents under Wisconsin law.

An informal conference notice was mailed to Badger in care of Gill & Co. on September 16, 1959, and on September 18, 1959, an informal conference was held. Donald E. Gill purported to represent Badger. Depreciation adjustments for the taxable years ended October 31, 1955, October 31, 1956, and October 29, 1957, were discussed.

On June 2, 1960, respondent issued a statutory notice of deficiency to Badger, in care of Gill & Co., asserting depreciation adjustments for the taxable years ended October 31, 1955, October 31, 1956, and October 31, 1957. On August 31, 1960, Badger filed a petition with this Court which was verified by Gallagher as follows:

J. A. Gallagher, being duly sworn, says that he was Treasurer of Badger Materials, Inc., at the time of the dissolution of such corporation and if the petitioner has any legal existence, is such Treasurer, and if it has legal existence is duly authorized to verify the foregoing petition on behalf of the petitioner above named; * * *

On June 15, 1961, respondent issued a statutory notice of transferee liability to Arthur Overgaard asserting his liability as a transferee of assets of Badger for deficiencies in income tax due from said transferor for the taxable years ended October...