McPherson v. Commissioner of Internal Revenue, 6550

• Court: U.S. Court of Appeals — Ninth Circuit
• Writing for the Court: WILBUR and SAWTELLE, Circuit , and JAMES
• Citation: McPherson v. Commissioner of Internal Revenue, 54 F.2d 751 (9th Cir. 1932)
• Decision Date: 05 January 1932
• Docket Number: No. 6550,6551.,6550
• Parties: McPHERSON v. COMMISSIONER OF INTERNAL REVENUE. LEIGHTON v. SAME.

54 F.2d 751 (1932)

McPHERSON v. COMMISSIONER OF INTERNAL REVENUE.^*

LEIGHTON v. SAME.

Nos. 6550, 6551.

Circuit Court of Appeals, Ninth Circuit.

January 5, 1932.

Herman Weinberger and Chickering & Gregory, all of San Francisco, Cal., for petitioners.

G. A. Youngquist, Asst. Atty. Gen., Sewall Key and Erwin N. Griswold, Sp. Assts. to the Atty. Gen. (C. M. Charest, Gen. Counsel, and Laura M. Berrien, Sp. Atty., Bureau of Internal Revenue, both of Washington, D. C., of counsel), for respondent.

Before WILBUR and SAWTELLE, Circuit Judges, and JAMES, District Judge.

JAMES, District Judge.

The petitioners herein are contesting the determination of the United States Board of Tax Appeals holding them liable as transferees for the payment, in the case of petitioner McPherson of $2,000, and in the case of Leighton of $900, as their proportion of a total income and profits tax of $7,986.53 assessed against Leighton's Inc., a corporation. All of the proceedings with respect to the imposition of the main tax, and the amounts thereof assessed against petitioners, were had subsequent to June 25, 1920, on which date the corporation was regularly dissolved as permitted by the laws of California. The corporation was organized on March 29, 1919. At and prior to the date of its dissolution, these petitioners, with Carl Barthel, constituted its board of directors. Before the proceedings to dissolve the corporation were completed, petitioner Leighton purchased the assets of the corporation for the sum of $15,000, and when those proceedings were completed the $15,000 was distributed to the stockholders in proportion to their holdings. Under such distribution, petitioner McPherson received $2,000 and petitioner Leighton $900.

On March 15, 1920 (after the dissolution proceedings), a tax return was made on behalf of the corporation which was signed by the two petitioners as corporate officers. On March 6, 1925, these petitioners, with Carl Barthel, designating themselves as surviving trustees of "Leighton's Inc., a dissolved corporation taxpayer" filed with the commissioner a waiver of the time prescribed by law for making assessments in the form customarily used by the Tax Department, which waiver extended the time for making the assessment to December 31, 1925, when it was provided to expire, except that, as the waiver read, "if a notice of deficiency in tax is sent to said taxpayer by registered mail before said date and no appeal is filed therefrom with the United States Board of Tax Appeals, then said time shall be extended sixty days. * * *"

On September 29, 1925, the commissioner mailed a deficiency notice to the corporation, showing as due on account of the income and profits tax the sum hereinbefore given. No claim is made that the trustees did not receive this notice. This deficiency amount was assessed in January, 1926. On February 21, 1927, the petitioners were duly notified by the commissioner of their proportionate liability of the deficiency tax so assessed. Upon petition for redetermination of the tax, the Board of Tax Appeals sustained the commissioner, except that the Leighton tax amount was reduced to $900.

Petitioners urge the contentions: (1) That the commissioner was not authorized under the law to make the deficiency assessment against a corporation that had been dissolved. (2) That the waiver extending the time within which the assessment might be made was invalid.

It is admitted that the provisions of section 280 of the Revenue Act of 1926 (44 Stat. 61 26 USCA § 1069), wherein a summary method is provided for the enforcement of an income tax charge against the transferees of assets of the taxpayer primarily liable therefor, apply to this case, notwithstanding that the year for which the tax was levied was one antedating the approval of the act. The latter admission is an inescapable one, since the decision of the Supreme Court in Phillips v. Commissioner, 283 U. S. 589, 51 S. Ct. 608, 75 L. Ed. 1289. Prior to the passage of the Revenue Act of 1926, assets of the delinquent taxpayer in the hands of a transferee might be reached in satisfaction of the tax charge only by a proceeding at law or in equity. The 1926 act provided for the summary assessment against such a transferee, which should be governed by the same procedure as that applicable in the assessment of the primary tax. The Supreme Court of the United States, in the case last above cited, affirmed the right of Congress to provide a summary proceeding for the enforcement of an income tax assessment against a transferee of assets, holding that no constitutional right was infringed thereby, as the transferee was given full right to contest the tax and its amount, and have a judicial hearing thereon.

Upon the dissolution of the corporation, the petitioners, together with Barthel, as directors of the corporation, became trustees, with the power and duty to adjust any unsettled affairs of the corporation; to collect its receivables and to pay its debts. Section 400 of the Civil Code of California, as it read during...