Hulburd v. Commissioner of Internal Revenue

• Decision Date: 09 December 1935
• Docket Number: No. 39,39
• Citation: 296 U.S. 300,56 S.Ct. 197,80 L.Ed. 242
• Parties: HULBURD v. COMMISSIONER OF INTERNAL REVENUE
• Court: U.S. Supreme Court

296 U.S. 300

56 S.Ct. 197

80 L.Ed. 242

HULBURD

v COMMISSIONER OF INTERNAL REVENUE.

No. 39.

Argued Nov. 14, 1935.

Decided Dec. 9, 1935.

[Syllabus from pages 300-301 intentionally omitted] Messrs. John E. Hughes and Henry A. Gardner, both of Chicago, Ill., for petitioner.

The Attorney General and Mr. N. A. Townsend, of Washington, D.C., for respondent.

Mr. Justice CARDOZO delivered the opinion of the Court.

The controversy is one as to the liability of the executor and legatee of a shareholder in a dissolved corporation for a deficiency of income and profits taxes assessed against the company.

In September, 1919, the Van Sicklen Company, an Illinois corporation, sold all its assets to a Delaware corporation, the Van Sicklen Speedometer Company, and was thereupon dissolved. In consideration of the sale it received $250,000 in cash and 5,000 shares in the new company, which it distributed forthwith among its own shareholders. One of these shareholders was Charles H. Hulburd. His distributive portion on the dissolution of the company was $8,000 in cash and 160 shares of nopar stock. He died on January 14, 1924, leaving a will by which his son, De Forest Hulburd, and Hugh McBirney Johnston were appointed executors. The son, who is the petitioner in this court, was also a legatee and devisee. The coexecutor, Johnston, is dead.

In December, 1919, the Van Sicklen Company filed a corporation income and profits tax return for the fiscal year ending September 30, 1919. The return, however, was inadequate. Accordingly, on November 17, 1924, the Commissioner of Internal Revenue made an additional assessment in the sum of $227,872.06, with penalties in the sum of $113,936.03. Unable to collect this deficiency from the company after the distribution of its assets, he turned to the shareholders. On October 27, 1926, he mailed a letter to the 'Estate of Charles H Hulburd, c/o De Forest Hulburd, 86 East Randolph Street, Chicago, Illinois.' In this he gave notice of a proposed assessment 'against the estate' by reason of its liability as transferee of the assets of the Illinois corporation. The amount of that liability was stated to be $24,000, but was afterwards reduced to $8,000, the cash received by the testator. In announcing this assessment, the Commissioner acted in reliance on section 280 of the Revenue Act of 1926 (26 U.S.C. App. § 1069, 26 USCA § 1069 and note); which permits an assessment against the transferee of a taxpayer upon the taxpayer's default. Before the passage of that act, shareholders who had received the assets of a dissolved corporation might be compelled to discharge unpaid corporate taxes, but only by bill in equity or action at law. Phillips v. Commissioner, 283 U.S. 589, 592, 593, 51 S.Ct. 608, 75 L.Ed. 1289. A summary procedure was added by the statute. Phillips v. Commissioner, supra. Upon the default of the taxpayer, the Commissioner is to apportion the deficiency among the transferees of the property and to give notice accordingly. Revenue Act 1926, § 274(a), 26 USCA § 1048. If the transferee is dissatisfied, he may petition the Board of Tax Appeals to redetermine the existence of liability and its proper distribution.

On October 27, 1926, when notice of the proposed assessment was sent to the petitioner, the estate of Charles H. Hulburd had been settled, the assets distributed, and the executors discharged.¹ The discharged executors sub- mitted to the Board of Tax Appeals a petition for review disclaiming liability. They stated in effect that they were the persons who had been appointed executors by the will of Charles H. Hulburd, but that their responsibilities as such were ended. Enumerating their objections to the assessment, they alleged that the action of the Commissioner was erroneous for the reason that the estate had been 'wholly distributed and settled and your petitioners duly discharged as executors thereof.' Thus, as early as December, 1926 (when the petition for review was filed), and before the period of limitation under the statute had run against a new assessment against legatees or devisees (Revenue Act 1926, § 280(b)(2), 26 USCA § 1069(b)(2), the Commissioner was put upon notice that the deficiency had been assessed against persons no longer liable and was given the opportunity to impose it upon others. Instead of doing this, he stood his ground and prayed for an order that his determination be confirmed.

The Board of Tax Appeals held that 'at the time the notice was mailed there was no liability of the estate or of the petitioners as executors.' It put aside the consideration of a possible 'liability of any of the beneficiaries under the will or the distributees of the assets of the estate' on the ground that no such question was in the case. 27 B.T.A. 1123; cf. 21 B.T.A. 23. The decision of the Board was reviewed by the Circuit Court of Appeals for the Seventh Circuit. That court decided that the executors were liable de bonis testatoris because they had failed to give notice to the Commissioner that their fiduciary capacity had terminated. Revenue Act 1926, § 281(b), 26 USCA § 1070(b). Besides this, the court held that De Forest Hulburd was liable individually to the extent of $4,000 because in the record there was evidence, not confirmed by any finding, that as legatee under the will he had received half of the $8,000 paid to his father on the dissolution of the company. The order of the Board was accordingly reversed, and the cause remanded for proceedings to conform to the opinion. 76 F.(2d) 736. The power was thus assumed to change a deficiency assessed against the executors of an estate into a deficiency to be assessed against a legatee who had shared in the estate. To determine the validity of that assumption and to settle other questions of statutory construction, a writ of certiorari was granted by this court.

First: The petitioner is not chargeable in this proceeding with liability as legatee under the will of a deceased shareholder in the taxpayer, a corporation now dissolved.

The act of 1926 (chapter 27, 44 Stat. 9, § 280; 26 U.S.C. App. § 1069, 26 USCA § 1069 and note), in supplementing by a summary procedure the cumbrous remedy of suit, laid the duty of assessment upon the Commissioner of Internal Revenue. 'The liability, at law or in equity, of a transferee of property of a taxpayer' was to be 'assessed, collected and paid in the same manner and subject to the same provisions and limitations' as in the case of any other tax deficiency. Id., § 280(a)(1), 26 USCA § 1069(a)(1). Pursuant to this mandate, the Commissioner did assess a liability and gave notice to the transferee accordingly. He assessed it to the estate re- presented by executors, and not to any one else. 'As provided by section 280 of the Revenue Act of 1926, there is proposed for assessment against the estate the sum of $24,000 constituting its liability as a transferee of the assets of the Van Sicklen Company, Elgin, Illinois.' The Board of Tax Appeals upon petition for review had power to redetermine the deficiency thus charged to the estate (Revenue Act 1926, § 274(e), 26 USCA § 1048c), but not to charge it to another. Cf. 26 U.S.C. (1934 Ed.) §§ 600, 601, 619 (26 USCA §§ 600, 601, 619); Williamsport Wire Rope Co. v. United States, 277 U.S. 551, 562, 564, 48 S.Ct. 587, 72 L.Ed. 985. If some one else was to be charged, there would be need of a new assessment, which the Commissioner might make at any time within a year after the enactment of the statute. Revenue Act 1926, § 280(b)(2). In making it he would consider any facts material and relevant for arriving at a just apportionment of benefits and burdens. The duty to inquire and determine was imposed by the statute upon him and not upon an agency of government established for the purpose of revising his decision. These restraints upon jurisdiction were duly heeded by the Board. It disclaimed the power or the purpose to pass upon the liability of legatees or devisees or to assess a tax against them. The same restraints upon jurisdiction were binding upon the Court of Appeals in reviewing the action of the Board, and binding with greater emphasis, for the court was without power to choose between conflicting inferences unless only one was possible, or to try the case de novo. Helvering v. Rankin, 295 U.S. 123, 55 S.Ct. 732, 79 L.Ed. 1343. The adjudication of liability as to Hulburd individually was made in seeming forgetfulness of these jurisdictional restrictions. It was error to ignore them.

In so holding, we are not unmindful of the argument for the respondent that the form of the petition to review the action of the Commissioner was effective in some way to enlarge the scope of the proceeding and to subject the legatee to a new and different assessment. The argument will not stand. There is nothing in the petition submitted to the Board whereby power was extended beyond the statutory limits, if we assume provisionally that consent might be effective, at least in certain circumstances, to bring that result about. The petitioners, having been discharged as executors, were unwilling to describe themselves as if they were still acting in that capacity. What they did was to state the facts and ask the judgment of the Board thereon. Far from conceding that the assessment ran against either of them personally, they protested that in form and in purpose it was an assessment against the estate and hence was of no validity after the estate had been settled and the executors discharged. The meaning of their protest was not subject to misconstruction, nor in fact was it misconstrued, as the opinion of the Board shows if the fact might otherwise be doubtful. When the protest had been made, the remedy available to the Commissioner was obvious and ample. He had time even then as we have already pointed out, to announce a new assessment, which would have brought up the question whether the liability once resting on the executors had...