Koch v. United States

• Decision Date: 08 November 1943
• Docket Number: No. 2733-2735.,2733-2735.
• Citation: 138 F.2d 850
• Parties: KOCH v. UNITED STATES. PERDEW v. SAME. WINKLER v. SAME.
• Court: U.S. Court of Appeals — Tenth Circuit

138 F.2d 850 (1943)

KOCH v. UNITED STATES.

PERDEW v. SAME.

WINKLER v. SAME.

Nos. 2733-2735.

Circuit Court of Appeals, Tenth Circuit.

November 8, 1943.

Mark H. Adams, of Wichita, Kan. (Charles E. Jones and J. Ashford Manka, both of Wichita, Kan., on the brief), for appellants.

John E. Garvey, Atty., Dept. of Justice (Samuel O. Clark, Jr., Asst. Atty. Gen., Sewall Key and F. E. Youngman, Sp. Assts. to Atty. Gen., and George H. West, U. S. Atty., of Topeka, Kan., on the brief), for the United States.

Before PHILLIPS, HUXMAN, and MURRAH, Circuit Judges.

PHILLIPS, Circuit Judge.

Koch, Perdew, and Winkler¹ each filed claims for refund of additional income taxes and interest paid for the year 1935. The claims were denied. The claimants brought separate suits to recover on their respective claims. The suits were consolidated below. A single judgment was entered dismissing the complaints.

On December 17, 1931, the claimants owned all of the issued and outstanding capital stock of the Oil Brokerage & Investment Company,² a Kansas corporation. On that date, the Investment Company was dissolved and its entire assets of the value of $493,590.84 were distributed to the claimants in proportion to their stock holdings. Koch and Winkler each owned 2,187.5 shares and each received assets of the value of $215,946.62. Perdew owned 625 shares and received assets of the value of $61,697.60. Thereafter, the Commissioner of Internal Revenue advised the Investment Company of proposed assessments of additional income taxes for the years 1930 and 1931 in the respective amounts of $343,816.92 and $225,578.59.

On March 7, 1934, the Commissioner notified each claimant by registered mail that he proposed to assess against him, as transferee of the Investment Company, in accordance with the provisions of § 311 of the Revenue Act of 1928, 45 Stat. 860, 26 U.S.C.A. Int.Rev.Code, § 311, the full amount, plus interest, of the additional tax determined against the Investment Company for the year 1930. On March 14, 1935, the Commissioner sent a like notice by registered mail to each claimant with respect to the additional taxes determined against the Investment Company for the year 1931.

The claimants filed a petition with the Board of Tax Appeals for a redetermination of the deficiency. After the matter reached the Board of Tax Appeals an agreement was entered into fixing the liability of Koch and Winkler in the sum of $76,562.50 each, with interest as provided by law, and fixing the liability of Perdew at $21,875.00, with interest as provided by law.

The claimants filed income tax returns for the year 1931, in which they reported capital gains resulting from distributions to them of the assets of the Investment Company. The Commissioner determined that none of them had realized a capital gain from the distribution of the assets of the Investment Company, and that each was taxable on the respective amount received by him as a dividend. Accordingly, the Commissioner proposed deficiencies which were paid on October 18, 1934. On December 10, 1934, each claimant filed a claim for refund for taxes paid for the year 1931, identical except as to amounts, and reading, in part, as follows:

"If it is ultimately determined that The Oil Brokerage and Investment Company is liable for any additional income tax or other claim which had not been paid or taken into account at the time of liquidation, claimant has overpaid his individual income tax for 1931. This claim is filed to protect the right to any refund which might thus be determined to be due."

The agreement above referred to fixing their respective liabilities as transferees also stipulated that such claims for refund should be denied.

The decision fixing the transferee liabilities of the claimants was entered August 2, 1935. Koch and Winkler each paid $76,562.50 and $20,170.54 interest. Perdew paid $21,875.00 and $5,763.01 interest. Each claimant in his individual income tax return for the year 1935 took as a deduction for interest paid during the taxable year the amount he had paid as interest in discharging his transferee liability. The Commissioner disallowed the deductions and assessed additional taxes, which were paid in September, 1940. On October 12, 1940, the claimants filed the claims on which these actions are predicated.

Each claimant now asserts that he was entitled to deduct the amount of interest which accrued on the tax liabilities of the Investment Company after the date the assets of the Investment Company were distributed and which he paid as transferee.

Section 23 of the Revenue Act of 1934, 48 Stat. 688, 26 U.S.C.A. Int.Rev.Code, § 23, in part, reads:

"In computing net income there shall be allowed as deductions: * * *

"(b) Interest. All interest paid or accrued within the taxable year on indebtedness, * * *."

Kansas Gen.Stat.1935, § 17-808, provides that upon the dissolution of a corporation created under the laws of Kansas, unless a receiver is appointed, the president and directors, at the time of the dissolution, shall be trustees of the creditors and stockholders, and shall divide the moneys and other property among the stockholders, after paying the debts due and owing by the corporation at the time of its dissolution, as far as such moneys and property will enable them.

Kansas Gen.Stat.1935, § 17-809, provides that such trustees shall be severally responsible to the creditors and stockholders of the corporation, to the extent of its property and effects that shall have come into their hands.

Counsel for the claimants contend that by virtue of these statutes they were personally liable for the tax indebtedness of the Investment Company and that, therefore, the interest which they paid was interest on their debts.

But the liability asserted against them by the Commissioner was not predicated on the fact that they were statutory trustees or corporate officers. It was predicated on the fact that the assets were distributed to them as stockholders and upon their liability as transferees arising from the fact that they took the assets as trustees for the creditors of the Investment Company.

Section 311 of the Revenue Act of 1928, in part, reads as follows:

"(a) Method of collection. The amounts of the following liabilities shall, except as hereinafter in this section provided, be assessed, collected, and paid in the same manner and subject to the same provisions and limitations as in the case of a deficiency in a tax imposed by this title (including the provisions in case of delinquency in payment after notice and demand, the provisions authorizing distraint and proceedings in court for collection, and the provisions prohibiting claims and suits for refunds):

"(1) Transferees. The liability, at law or in equity, of a transferee of property of a taxpayer, in respect of the tax (including interest, additional amounts, and additions to the tax provided by law) imposed upon the taxpayer by this title."

This statute did not create a substantive right, but merely provided a new remedy for enforcing the existing liability at law or in equity of transferees of property.³

Where the assets of a dissolved corporation have been distributed among the stockholders, a creditor of the dissolved corporation may follow such assets as in the nature of a trust fund into the hands of stockholders. The creditors have the right to subject such assets to their debts and for that purpose the stockholders hold them as though they were trustees. In other words, the assets of the dissolved corporation are a trust fund against which the corporate creditors have a claim superior to that of the stockholders. A stockholder who receives only a portion of the assets is liable to respond only for that portion. Where the assets coming into the hands of a stockholder suffer a change in value, the creditor must take the trust fund as he finds it, securing the advantage of any increase and suffering any decrease, unless the stockholder is responsible for the decrease. Where the trust property has been used by the stockholder for his own purpose, or disposed of by him, he may be held personally liable for the full value thereof.⁴

Thus, it will be...