Gensinger v. Comm'r of Internal Revenue

• Decision Date: 25 April 1952
• Docket Number: Docket No. 33288.
• Parties: E. D. GENSINGER, TRANSFEREE OF COLUMBIA RIVER ORCHARDS, INC., PETITIONER v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.
• Court: U.S. Tax Court

18 T.C. 122

E. D. GENSINGER, TRANSFEREE OF COLUMBIA RIVER ORCHARDS, INC., PETITIONER

v.COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

Docket No. 33288.

Tax Court of the United States.

Promulgated April 25, 1952.

1. INCOME— GAIN FROM SALE— CORPORATION'S OR SOLE STOCKHOLDER'S.?— When a corporation in the ordinary course of its business delivered apricots from its orchards to a marketing cooperative which then mixed them in pools with the apricots of other growers, sold the pools, and paid the proceeds from the apricots grown by the corporation to a creditor of the corporation, the corporation in the meantime having commenced dissolution, the amount so paid is taxable to the corporation and not to the sole stockholder.

2. ID.— Proceeds from sale of peaches similarly held taxable to corporation. Principle of Cohan v. Commissioner, 39 F.2d 540, applied to distinguish between proceeds from peaches grown in the orchards of the corporation which are taxable to the corporation and those grown in orchards of the sole stockholder which are not taxable to the corporation.

3. STATUTE OF LIMITATIONS— STARTING— IMPROPER RETURN.— A corporation income tax return filed for the period January 1 through July 7, 1943, which period was not the taxable period of the taxpayer, was not the return required by law and did not serve to start the running of the statutory period for assessment and collection of any tax for the calendar year 1943.

4. PENALTIES— NEGLIGENCE— FAILURE TO FILE RETURN— SECTIONS 293(a) AND 291(a).— Penalties held not applicable. A. R. Kehoe, Esq., for the petitioner.

John N. Pigg, Esq., for the respondent.

The Commissioner notified the petitioner that he was being held liable as transferee of the assets of Columbia River Orchards, Inc., for the following deficiencies, plus 5 per cent additions under section 293(a) and an addition of 25 per cent of the excess profits tax deficiency under section 291(a) for failure to file an excess profits tax return, determined against Columbia River Orchards, Inc., for the calendar years 1943:

+---------------------------------------------------------------+
                ¦Tax                          ¦Deficiency¦5% penalty¦25% penalty¦
                +-----------------------------+----------+----------+-----------¦
                ¦Income                       ¦$5,276.68 ¦$263.83   ¦None       ¦
                +-----------------------------+----------+----------+-----------¦
                ¦Declared value excess-profits¦18,239.66 ¦911.98    ¦None       ¦
                +-----------------------------+----------+----------+-----------¦
                ¦Excess profits               ¦104,674.96¦5,233.75  ¦26,168.74  ¦
                +---------------------------------------------------------------+
                

The principal issue is whether sales of fruit were made by or on behalf of the taxpayer or by or on behalf of the petitioner. Other issues are whether the notice of transferee liability was mailed at a time when assessment against and collection from the petitioner was barred by the statute of limitations and whether the penalties are due.

FINDINGS OF FACT.

The petitioner is an individual. Okel E. Gensinger is his wife. The petitioner was a fruit farmer at all times material hereto.

The petitioner, a number of years prior to 1943, organized a Washington corporation known as Columbia River Orchards, Inc., hereafter sometimes referred to as the corporation, and transferred 300 acres of land to that corporation in exchange for its capital stock. The benefits which he expected to derive from the corporation failed to materialize and as the owner of all of its stock, he decided in 1942 or early in 1943 to liquidate it and operate the orchard as an individual in order to avoid corporate taxes on the profits which he then expected.

The petitioner as president and his wife as secretary of the corporation signed a resolution, dated May 31, 1943, which concluded as follows:

NOW, THEREFORE, BE IT HEREBY RESOLVED by all the stockholders of the Columbia River Orchards, Incorporated, at a meeting called for the purpose of considering the voluntary dissolution of the corporation—

1. That the business of the corporation be closed and a voluntary dissolution of the corporation be had as provided by Sections 3803-48-49 of Remington's Revised Statutes of the State of Washington;

2. That the affairs of the corporation be wound up out of court and E. D. Gensinger be designated as a Trustee to conduct the winding up of the corporation's affairs;

3. That all the assets of the corporation be conveyed to the stockholders of the corporation as individuals, the ownership of such stock to be on the basis of equal shares; the stockholders in consideration of such conveyance to them do assume and agree to pay any and all obligations of said corporation now existing, such obligations to be paid in accordance with the terms and conditions thereof.

No date was fixed for the dissolution of the corporation.

The petitioner and his wife, who held qualifying shares, signed a document as follows:

RESOLUTION

for DISSOLUTION OF THE

COLUMBIA RIVER ORCHARDS, INC.

Adopted Special Meeting July 17, 1943

BE IT RESOLVED that all of the voting power of the shareholders of Columbia River Orchards, Inc., a corporation, consider it to be to the best interests of the Shareholders thereof and its creditors that the corporation be dissolved, such dissolution to be as of July 17, 1943.

It is hereby declared that Columbia River Orchards, Inc., be dissolved and wound up out of court, and that E. D. Gensinger, president and shareholder of the corporation, is hereby appointed Trustee to conduct the winding up of the affairs of the Columbia River Orchards, Inc.

BE IT FURTHER RESOLVED that E. D. Gensinger and Okel E. Gensinger, being all of the directors of Columbia River Orchards, Inc., shall cause to be made duplicate copies of this Resolution and shall sign and acknowledge the same and cause one of such copies to be filed in the office of the Secretary of State of the State of Washington, and the other copy filed in the office of the Auditor of Chelan County, where the company has its registered office.

In approval of the above and foregoing Resolution, the undersigned, being all of the shareholders of Columbia River Orchards, Inc., hereunto subscribe their respective names.

Copies of the above were filed in the office of the Secretary of the State of Washington on July 19, 1943, and in the office of the Auditor of Chelan County, Washington, where the corporation had its registered office, on July 20, 1943.

The books of the corporation were closed as of July 15, 1943. The bank account of the corporation was maintained until August 3, 1943, to allow outstanding checks to clear. The petitioner on August 3, 1943, transferred the balance in that account to a newly opened joint account in the name of ‘E. D. or Okel E. Gensinger DBA Columbia River Orchards.‘

The petitioner on October 11, 1943, as trustee of Columbia River Orchards, Inc., executed a deed transferring to himself in his individual capacity the interest of the corporation in its real property, in its irrigation and spraying equipment, in its tools and equipment for growing, harvesting and marketing fruit, and in a tractor. That deed was recorded on November 18, 1943.

The trustee's certificate of final dissolution of the corporation, dated April 28, 1944, was filed for record in the office of the Secretary of State of Washington on May 24, 1944. That terminated the existence of the corporation on that day.

The only tax return filed for the corporation for any period beginning after December 31, 1942, was the income and declared value excess-profits tax return filed October 16, 1943, for the period January 1 to July 7, 1943. The prior returns had all been filed for calendar years. All returns were filed on a cash basis. The notice of transferee liability was mailed to the petitioner on January 9, 1951.

The corporation did not have a taxable period beginning January 1 and ending July 7, 1943.

A correct taxable period for the corporation was the calendar year 1943. It filed no returns for that period.

The corporation and the petitioner at all times material hereto had separate uncanceled member's marketing contracts with Ninth Street Skookum Growers, Inc., hereafter called Skookum, a cooperative marketing association in Wenatchee, Washington. Skookum received fruit produced by its members; cleaned, graded, and packed it; placed it in weekly pools made up of carload lots which it shipped f.o.b. Wenatchee subject to inspection by the buyer at destination; made sales of carload lots; and distributed the net proceeds of each pool after the pool was closed following the sale of the last carload lot in the pool. The fruit received by Skookum from different members became mixed immediately with that of all other members contributing to a pool and thereby lost its identity as far as the grower was concerned.

The petitioner notified the manager of Skookum prior to the first delivery of the 1943 crop of apricots from Columbia River Orchards that he had ‘disincorporated‘ Columbia River Orchards, Inc., and the apricots and later crops from Columbia River Orchards would belong to him and were to be handled for his individual account. Skookum had carried the petitioner's individual account in his name and had carried the account of the corporation as ‘Columbia River Orchards.‘ The manager said he would comply with the petitioner's request. Skookum accounted for the 1943 apricot and peach crops coming from Columbia River Orchards in the account entitled ‘Columbia River Orchards.‘ That account was continued in order to keep separate account of the fruit coming from that source.

The operations of Columbia River Orchards, Inc., as well as those of the petitioner, were financed through loans from Regional Agricultural Credit Corporation, hereafter called RACC, a credit company created by the Reconstruction Finance Corporation, which made loans to growers and took first mortgages on growing fruit crops and...