Dillman v. Comm'r of Internal Revenue, Docket Nos. 3587-74

• Citation: 64 T.C. 797
• Decision Date: 05 August 1975
• Docket Number: 3594-74.,Docket Nos. 3587-74
• Parties: BRUCE DILLMAN, PETITIONER v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENTBLAIR DILLMAN, PETITIONER v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT
• Court: United States Tax Court

64 T.C. 797

BRUCE DILLMAN, PETITIONER

v.COMMISSIONER OF INTERNAL REVENUE, RESPONDENTBLAIR DILLMAN, PETITIONER

v.COMMISSIONER OF INTERNAL REVENUE, RESPONDENT

Docket Nos. 3587-74

3594-74.

United States Tax Court

Filed August 5, 1975.

V. Downing Edwards, for the petitioners.

F. Patrick Matthews, for the respondent.

Rule 121, Tax Court Rules of Practice and Procedure.— Held: Wis. Stat. Ann. sec. 180.787 providing for survival of remedies for and against dissolved corporations and their stockholders for a period of 2 years after dissolution does not limit the liability of stockholders as transferees of corporate assets. Notices of transferee liability issued to stockholder-transferees more than 4 years after dissolution of corporation but within 1 year after the expiration of period of limitation for assessment of tax against the transferor corporation are timely under sec. 6901, I.R.C. 1954. Petitioners' motions for summary judgment denied.

OPINION

DRENNEN, Judge:

These cases have been consolidated for purposes of this opinion and are here on petitioners' Motion for Summary Judgment. The issue raised by the motions is whether Wisconsin Statutes Annotated section 180.787, which provides for survival of remedies against a corporation and its stockholders for a period of 2 years after dissolution of the corporation, bars issuance of valid notices of transferee liability and assessment of a deficiency in the corporate tax incurred before dissolution against stockholder-distributees of the corporate assets on liquidation where the notices of transferee liability are issued more than 4 years after the corporation was dissolved but within 1 year after expiration of the period within which respondent could have issued a notice of deficiency to the corporation and assessed the tax under section 6901(c), I.R.C. 1954.¹

The motions were submitted on stipulations of facts filed by the parties and were taken under advisement by the Court to permit the parties to file briefs. The pertinent stipulated facts are as follows:

Dillman Bros. Asphalt Co., Inc. (hereinafter Dillman Bros.), was a Wisconsin corporation having its principal office at Lancaster, Wis. Dillman Bros. is the petitioner in the case before this Court bearing docket No. 4238-73.

Dillman Bros. filed its 1966 Federal corporate income tax return on March 16, 1967, with the District Director of Internal Revenue at Milwaukee, Wis., and its 1969 Federal corporate income tax return on March 19, 1970, with the Director of the Internal Revenue Service Center at Kansas City, Mo.

On February 11, 1970, articles of dissolution for Dillman Bros. were filed with the Department of State of Wisconsin which issued a certificate of dissolution on the same date. The articles of dissolution and the certificate of dissolution were filed with the register of deeds for Crawford County, Wis., on February 17, 1970.

Dillman Bros. was dissolved and ceased its corporate existence on February 17, 1970. All of its assets, greater in value than the proposed income tax deficiencies asserted against Dillman Bros., were distributed on a pro rata basis on or before February 11, 1970, to Bruce Dillman and Blair Dillman, each of whom had held 50 percent of the outstanding stock of Dillman Bros. As a result of said distribution Bruce Dillman and Blair Dillman each received over $70,900.55.

By statutory notice of deficiency sent to Dillman Bros. on March 14, 1973, the Commissioner determined deficiencies in corporate income tax for the taxable years 1966 and 1969 in the amounts of $1,342.64 and $69,557.91, respectively. The mailing of the statutory notice was over 3 years after the dissolution of the company was completed, but within 3 years of the filing of the company's income tax return for 1969.

On February 16, 1973, Dillman Bros. and respondent executed a Special Consent Fixing Period of Limitation Upon Assessment of Income Tax (Form 872-A) for 1969. No other such special consents were executed. The deficiency determined against Dillman Bros. for its taxable year 1966 is attributable to the disallowance of a tentative refund made to Dillman Bros. upon its application for a net operating loss carryback from its taxable year 1969 to its taxable year 1966.

The statutory notices of liability determining their liability as transferees of Dillman Bros. for the aforementioned tax deficiencies asserted against it for 1966 and 1969 were mailed to Bruce and Blair Dillman, alleged transferees of Dillman Bros., on March 13, 1974, over 4 years after dissolution of Dillman Bros. was completed but within 4 years of the filing of the company's income tax return for 1969.

No Consent Fixing Period of Limitation on Assessment of Liability at Law or in Equity for Income, Gift, and Estate Tax, Against a Transferee or Fiduciary (Form 977), was ever executed by Bruce or Blair Dillman.

There are issues of fact as to whether Dillman Bros. incurred any section 1245 gain on the sale of its equipment in 1969 and whether Dillman Bros. incurred a net operating loss in the taxable year 1969 which may necessitate a trial on the merits.

The grounds stated in petitioners' motions for summary judgment are (1) the Commissioner was without jurisdiction and was barred from assessing any transferee liability against petitioners when he issued the notices of transferee liability to petitioners by Wisconsin Statutes section 180.787, and (2) the petitioners are not liable as transferees because the time during which the petitioners could be held liable as transferees of Dillman Bros. expired under Wisconsin Statutes section 180.787 before the Commissioner issued the notices of transferee liability.

On brief petitioners state as the reason for the first ground stated above that the Commissioner was without jurisdiction to assess a deficiency against Dillman Bros. more than 2 years after it was dissolved, under the Wisconsin statute, and for that reason was also without jurisdiction to issue notices of transferee liability against petitioners as transferees of Dillman Bros. We think petitioners have misapplied the authority upon which they rely in support of this argument.

Respondent's ‘jurisdiction,‘ or more aptly his authority, for issuing a notice of transferee liability is derived solely from the Federal statutes. Section 6901(a) of the Internal Revenue Code of 1954 provides that with respect to transferred assets the method of collecting liabilities shall be the same, and subject to the same limitations, as in the case of taxes with respect to which the liabilities were incurred; specifically the liability, at law or in equity, of a transferee of property of a taxpayer upon whom is imposed an income tax. Under subsection (b) the liability referred to in subsection (a) may be either as to the amount of tax shown on a return or as to any deficiency or underpayment of any tax. Subsection (c) in pertinent part provides that the period of limitations for assessment of any such liability of a transferee shall be in the case of an initial transferee, ‘within 1 year after the expiration of the period of limitation for assessment against the transferor.’ Subsection (h) defines a transferee as including a ‘donee * * * and distributee.’

The effect of these provisions is to require the Commissioner, before assessing transferee liability for income tax, to issue to the transferee a notice of transferee liability just as he must mail to a taxpayer a notice of deficiency before assessing additional income tax. Subsection 6901(g) recognizes that a notice of transferee liability may be issued to a dissolved corporation by providing that, absent notice of a fiduciary relationship, the notice shall be sufficient if mailed to the person subject to such liability at his last known address even if ‘in the case of a corporation, (it) has terminated its existence.’ The same rule applies with respect to the address for a notice of deficiency under section 6212(b).

The transferee liability provisions of the Internal Revenue Code were described in Commissioner V. Stern, 357 U.S. 39 (1958), as neither creating nor defining a substantive liability but as merely providing a new procedure by which the Government may collect taxes. The statute in no way changes the extent of the liability of the transferee; it merely provides a summary procedure for collection of the liability in lieu of the old procedure in equity. In Phillips V. Commissioner, 283 U.S. 589 (1931), the Supreme Court affirmed the right of the Commissioner to use, and the constitutionality of, this new remedy for enforcing existing liability of transferees, at law or in equity.

The notice of transferee liability is simply a notice sent to the transferee, as required by Federal statute before assessment can be made, that the Commissioner has determined that transferee liability exists and proposes to assess the liability, giving the transferee 90 days within which to petition the Tax Court for a redetermination of the existence of the liability. See W. W. Cleveland, 28 B.T.A. 478 (1933), affd. per curiam 77 F.2d 184 (5th Cir. 1935). Certainly a State statute cannot control the procedures established by the Federal Government for collection of taxes due it; and we do not believe the Wisconsin statute attempts to do so.

Since the issuance of a notice of transferee liability is a step in a summary procedure authorized by Federal statute for collection of transferee liability if any exists, Wisconsin Statutes section 180.787,² relied on by petitioners, has nothing to do with the jurisdiction, or authority, of respondent to issue the notices.

Furthermore, it is well settled that when a corporate taxpayer has been dissolved and has no assets there is no need to issue a statutory notice of deficiency to the corporation in order to impose liability on the transferees, because to do so would be useless act. Ray A. Maher, 55 T.C. 441 (1970), affd. in part and remanded 469 F.2d 225 (8th...