Harvey Coal Corp. v. Comm'r of Internal Revenue
| Decision Date | 21 April 1949 |
| Docket Number | 5896.,Docket Nos. 2451 |
| Citation | 12 T.C. 596 |
| Parties | HARVEY COAL CORPORATION, TRANSFEREE, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. |
| Court | U.S. Tax Court |
OPINION TEXT STARTS HERE
1. JURISDICTION— SECOND NOTICE OF TRANSFEREE LIABILITY.— The Commissioner on April 22, 1943, mailed the petitioner a first notice of transferee liability of $8,979.89, including tax and penalty, on account of taxes due from its predecessor company for the first ten months of 1924, and on June 1, 1944, a second notice of transferee liability of $51,532.24, including tax and penalty, for taxes due from the predecessor company for the entire calendar year 1924. The petitioner filed separate petitions with this Court from both notices. Held, that the second notice was prohibited, under section 272(f), Internal Revenue Code, and that this Court is without jurisdiction in the proceeding based thereon.
2. STATUTE OF LIMITATIONS— SUFFICIENCY OF RETURN FILED TO START THE RUNNING OF THE STATUTE.— A return was timely filed for 1924 purporting to be the return of a new corporation for the last two months of 1924 and its predecessor corporation for the first ten months of that year. The return bore the name of the successor corporation only in the caption, but contained items of income and deductions of both corporations. The Commissioner used the return as a basis for an additional assessment against the successor corporation and made computations, after examination of the companies' books, of the tax liabilities of both corporations for the respective periods. Held, that the return filed was a sufficient return of the predecessor corporation to start the running of the statute of limitations. Geo. E. H. Goodner, Esq., and Scott P. Crampton, Esq., for the petitioner.
F. L. Van Haaften, Esq., for the respondent.
These proceedings, consolidated for hearing, involve transferee liabilities against the petitioner, Harvey Coal Corporation, for income taxes and penalties allegedly due from Harvey Coal Co. for 1924.
The notice of deficiency in Docket No. 2451 discloses a deficiency of $7,183.91 in income tax and a penalty of $1,795.98 for the period January 1 to October 31, 1924. In Docket No. 5896 the proposed deficiency is for the entire calendar year 1924 in the amount of $41,225.79 and a penalty of $10,306.45.
An amended answer has been filed in Docket No. 2451, in which it is affirmatively alleged that the deficiency therein determined of $8,979.89 is for the entire calendar year 1924.
The parties agree that the petitioner is liable in any event for only one of the proposed deficiencies and that one or the other of the proceedings should be dismissed for want of jurisdiction. Aside from the jurisdictional question, the issues as framed by the pleadings are as follows:
(1) Are the deficiencies herein determined barred by the statute of limitations?
(2) Is the respondent estopped from determining any deficiency in the taxes of the Harvey Coal Co. for 1924?
(3) Is the petitioner liable as transferee for any deficiency in the tax of the Harvey Coal Co. for 1924?
(4) Did the Harvey Coal Co. realize income in 1924 of $87,118.77 from the cancellation of a lease of certain coal lands in that year?
(5) Did the Harvey Coal Co. realize income in 1924 of $278,543.29 upon the transfer of its assets to the petitioner?
(6) Did the Harvey Coal Co. have any net income for the calendar year 1924, or for the period January 1 to October 31, 1924?
(7) Is the Harvey Coal Co. subject to a penalty for failure to file a return for 1924?
The petitioner, Harvey Coal Corporation, is the successor to, and the transferee of the assets of, Harvey Coal Co. These corporations will be referred to hereinafter, sometimes, as the company and the corporation.
The company was organized under the laws of Tennessee early in 1915. In May of that year it acquired by assignment a leasehold on certain properties known as the Harvey Mine and located at Harveyton, Kentucky. Under the lease agreement the company was obligated to pay the lessor a royalty of 8 cents per ton and to pay one-half of the taxes on the leased premises and all taxes on improvements thereto and the coal mined thereon.
On October 30, 1917, the company subleased this property to the Hazard-Jellico Coal Co. The sublease was renewed on May 27, 1919, for a term ending October 31, 1929. The sublease, as extended, provided for a rental of $36,000 per year for its entire ter;. One of the provisions of the lease was that all improvements made to the property during the term of the lease ‘shall become and remain‘ the property of Harvey Coal Co.
The Hazard-Jellico Co. operated the property until 1924, when it became insolvent and was placed in the hands of a receiver. Harvey Coal Co. then demanded that the property be returned to it. The court issued an order on September 25, 1924, that the property first be offered at public sale on October 28, 1924, and, in the absence of any satisfactory bid, that it be returned to Harvey Coal Co. on condition that the company pay or assume certain of Hazard-Jellico Co.'s obligations.
On October 31, 1924, pursuant to court order, the leasehold premises, with all improvements thereon, reverted to Harvey Coal Co. as of October 31, 1924, and the company assumed obligations of Hazard-Jellico Co. in the amount of $52,086.16.
The stockholders of the company decided to organize a new corporation to take over and operate the Harvey Mine properties. Accordingly, on November 19, 1924, Harvey Coal Corporation, the petitioner herein, was organized under the laws of the State of Tennessee, with an authorized capital stock of 5,000 shares of a par value of $100 each. All of the company's assets were transferred to the corporation in exchange for 4,000 shares, par value $400,000, of its capital stock and the assumption by the corporation of ‘all debts, obligations, contracts, taxes, and assessments of every kind and character which now exist or which may hereafter be levied upon or accrue against said Harvey Coal Company.‘ The deeds were executed by the receivers to the company and by the company to the corporation on November 28, 1924.
The 4,000 shares of the corporation's capital stock were distributed to the shareholders of the company and the remaining 1,000 shares were sold to the public at par. The corporate charter of the company was surrendered and canceled on December 10, 1924, pursuant to a resolution of the company's stockholders at a meeting held December 1, 1924. The company's books were closed as of October 31, 1924, with the following debit and credit entries:
Corresponding opening entries were made in the books of the corporation. The transferred assets were carried in the books of the corporation at the same figures appearing in the books of the company, except that the leasehold was marked up from $23,568.92 in the company's books to $392,464.65 in the books of the corporation. The liabilities set up in the corporation's books correspond to those in the books of the company, except that there were added the obligations which the corporation assumed under the court order referred to above, amounting to $19,000 for compensation claims, $23,000 for Federal income taxes, and $7,479.42 of accounts payable. The assumed obligations of the company in the total amount of $52,086.16 were subsequently paid by the corporation.
Neither the company's nor the corporation's books contained any entry showing the receipt of any assets placed on the leasehold by the Hazard-Jellico Co. during its occupancy. No gain or loss was ever reported by the company or the corporation on the forfeiture of the Hazard-Jellico Co. lease or on the transfer of the Harvey Coal Co.'s assets to the corporation.
Harvey Coal Co. kept its books on an accrual basis and made its returns for a calendar year. It filed income tax returns for 1921, 1922, and 1923 with the collector of internal revenue at Louisville, Kentucky. It filed no separate return for 1924. A return for that year was filed in the name of Harvey Coal Corporation on March 5, 1925. It was made out on Form 1120. The question appearing under the name of the taxpayer on the first page of the return: ‘Is this a consolidated return?‘, was answer ‘Yes.‘ However, none of the questions appearing on the last page of the return relating to ‘affiliations with other corporations‘ was answered. The return had attached to it a schedule which purported to show the income and deductions attributable to Harvey Coal Co. for 1924. The entire schedule was as follows:
+--------------------------------+
¦Income: ¦ ¦ ¦
+------------+---------+---------¦
¦Rents ¦ ¦$9,000.00¦
+------------+---------+---------¦
¦Deductions: ¦ ¦ ¦
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