Messer v. Comm'r of Internal Revenue , Docket Nos. 6523-65— 6525-65.
| Decision Date | 16 June 1969 |
| Docket Number | Docket Nos. 6523-65— 6525-65. |
| Citation | 52 T.C. 440 |
| Parties | SIDNEY MESSER, TRANSFEREE, ET AL.,1 PETITIONERS v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT |
| Court | U.S. Tax Court |
OPINION TEXT STARTS HERE
Julius G. Hirsch, for the petitioners.
Frank N.Panza, for the respondent.
Tel-O-Tube Corp. was dissolved under New Jersey law in 1960, but retained inter alia four interest-bearing notes and an antitrust claim until July 1961. Held, that the corporation continued in existence as a taxable entity through Sept. 30, 1961, Pursuant to sec. 1.6012-2(a)(2), Income Tax Regs., and is taxable on the interest income earned with respect to the notes for the period from Sept. 30, 1960, to Aug. 1, 1961, and on the proceeds from the settlement of the antitrust claim. Held, further, that the petitioners, its shareholders, are liable as transferees of the assets of the corporation under sec. 6901, I.R.C. 1954.
Respondent has asserted against petitioners transferee liability for an income tax deficiency determined to be due from Tel-O-Tube Corp. of America, transferor, for the taxable year ended September 30, 1961, in the amount of $39,158.43 and an addition to tax under section 6651(a), I.R.C. 1954, 2 in the amount of $9,789.61.
We are confronted with one issue: Did Tel-O-Tube Corp. of America, subsequent to its dissolution under State law, retain four interest-bearing notes and an antitrust claim and thereby remain a continuing entity, taxable on the interest earned with respect to the notes and the proceeds from the settlement of the claim?
If the corporation is liable for any deficiency, each of the petitioner concedes that he is liable as a transferee, pursuant to section 6901, for the full amount of any deficiency determined to be due, plus interest as provided by law.
Respondent concedes that the addition to tax under section 6651(a) was not incurred by Tel-O-Tube Corp. of America and is not payable by the petitioners.
Some of the facts have been stipulated. The stipulation of facts are exhibits attached thereto are incorporated herein by this reference.
Sidney Messer (herein called Messer) is an individual whose address at the time of the filing of the petition herein, and at all times material hereto, was 277 West End Avenue, New York, N.Y.
Nat Malamuth (herein called Malamuth) is an individual whose address at the time of the filing of the petition herein, and at all times material hereto, was 2 Horizon Road, Fort Lee, N.J.
At the time of the filing of the petition herein, Jack Antkies, executor of the Estate of Samuel Antkies, deceased, resided at 4 Dogwood Lane, Lawrence, N.Y., and Shirely Antkies, executrix of the Estate of Samuel Antkies, deceased, resided at 399 East 72d Street, New York, N.Y. The date of death of Samuel Antkies was July 10, 1960. Messer, Malamuth, Jack Antkies, and Shirely Antkies will be referred to herein collectively as petitioners.
Tel-O-Tube Corp. of America (herein called either the corporation or Tel-O-Tube) maintained its books and records and filed its Federal income tax returns on an accrual method of accounting. Since 1953 it has used the fiscal year ending September 30 as its annual accounting period. The income tax return for the fiscal year ended September 30, 1960, filed with the district director of internal revenue at Newark, N.Y., bears the notation ‘final return.’ The corporation has filed no income tax return for any period subsequent to the fiscal year ended September 30, 1960.
Tel-O-Tube was incorporated on January 27, 1948, under the laws of the State of New Jersey to engage in the manufacture and sale of television picture tubes. At all relevant times subsequent to July 10, 1960, Messer, Malamuth, and Samuel Antkies each owned one-third of the corporation's common and preferred stock.
Royalties due to the Radio Corp. of America (herein called RCA for the fiscal years 1953 through 1957 were accrued and deducted by the corporation, as follows:
+-----------------------------+
¦FYE Sept. 30— ¦Amount ¦
+------------------+----------¦
¦1953 ¦$20,032.15¦
+------------------+----------¦
¦1954 ¦23,757.49 ¦
+------------------+----------¦
¦1955 ¦28,439.19 ¦
+------------------+----------¦
¦1956 ¦22,249.20 ¦
+------------------+----------¦
¦1957 ¦17,727.62 ¦
+------------------+----------¦
¦Total ¦112,205.65¦
+-----------------------------+
On April 1, 1957, the corporation, having paid none of the royalties listed above, issued a series of promissory notes in favor of RCA, covering its liability to RCA for the royalties. The notes were due beginning April 1, 1962, and annually thereafter through April 1, 1974, as follows:
+--------------------------------------------------+
¦ ¦ ¦Total ¦
+-----------------------------+---------+----------¦
¦Apr. 1, 1962 and Apr. 1, 1963¦$5,000.00¦$10,000.00¦
+-----------------------------+---------+----------¦
¦Apr. 1, 1964 ¦7,500.00 ¦7,500.00 ¦
+-----------------------------+---------+----------¦
¦Apr. 1, 1965—Apr. 1, 1973 ¦9,500.00 ¦85,500.00 ¦
+-----------------------------+---------+----------¦
¦Apr. 1, 1974 ¦9,205.65 ¦9,205.65 ¦
+-----------------------------+---------+----------¦
¦Total ¦ ¦112,205.65¦
+--------------------------------------------------+
During its fiscal year ended September 30, 1957, the corporation terminated its manufacturing and sales operations and disposed of all of its operating assets. A portion of the proceeds from the sale of its fixed assets and collections from trade accounts were invested, to the extent of $100,000, in four income-producing notes of the Manufacturers Credit Corp.
One of the purposes for Tel-O-Tube's investment in the notes in 1957 was to create a funded reserve for its liability to RCA.
The corporation's income, as reported on its Federal income tax returns for the fiscal years 1958, 1959, and 1960 was as follows:
+-----------------------------------------------------------------------------+
¦ ¦FYE Sept. 30— ¦
+-----------------------------------------+-----------------------------------¦
¦ ¦1958 ¦1959 ¦1960 ¦
+-----------------------------------------+-----------+-----------+-----------¦
¦ ¦ ¦ ¦ ¦
+-----------------------------------------+-----------+-----------+-----------¦
¦Interest ¦$19,283.65 ¦$19,750.98 ¦$19,269.91 ¦
+-----------------------------------------+-----------+-----------------------¦
¦Sales of equipment ¦1,516.00 ¦ ¦
+-----------------------------------------+-----------+-----------------------¦
¦Insurance premium refunds ¦1,926.59 ¦ ¦
+-----------------------------------------+-----------+-----------------------¦
¦Total gross income ¦22,726.24 ¦19,750.98 ¦19,269.91 ¦
+-----------------------------------------+-----------+-----------+-----------¦
¦Deductions ¦4,373.19 ¦3,090.72 ¦8,755.44 ¦
+-----------------------------------------+-----------+-----------+-----------¦
¦Taxable income before net operating loss ¦18,353.05 ¦16,660.26 ¦10,514.47 ¦
¦deduction ¦ ¦ ¦ ¦
+-----------------------------------------+-----------+-----------+-----------¦
¦Net operating less deduction ¦(82,307.13)¦(63,954.08)¦(47,293.82)¦
+-----------------------------------------+-----------+-----------+-----------¦
¦Taxable income ¦(63,954.08)¦(47,293.82)¦(36,779.35)¦
+-----------------------------------------+-----------+-----------+-----------¦
¦ ¦ ¦ ¦ ¦
+-----------------------------------------------------------------------------+
Of the amounts of interest reported, $15,000 in each year represented the payments made by Manufacturers on the notes which the corporation owned.
The minutes of a special meeting of the board of directors of the corporation, dated September 19, 1960, contain a resolution providing, inter alia:
RESOLVED, that the corporation be dissolved forthwith and that its assets be distributed to the stockholders, subject to the payment of the claim of Radio Corporation of America.
FURTHER RESOLVED, that the officers of the corporation take all action necessary to effectuate the foregoing.
The corporation's directors at the time of the adoption of the plan of liquidation and dissolution were Ida Lipschitz, Mae Alman, and Shirley Kaplan, none of whom were shareholders in the corporation.
On October 4, 1960, the corporation filed information Form 966 with the district director of internal revenue at Newark, N.J. Forms 1096 and 1099-L were also timely filed with the district director.
The secretary of state of the State of New Jersey issued a certificate of dissolution, dated December 6, 1960, certifying that the corporation had filed in his office on that date a duly executed and attested consent in writing to its dissolution, executed by all its stockholders.
Adjusting journal entries dated September 30, 1960, were made on the books of the corporation, reflecting each petitioner's distributive share of the corporate assets, as follows:
+-----------------------------------------------------------------------------+
¦Assets ¦Total ¦Malamuth ¦Messer ¦Estate of¦
+------------------------------------+----------+---------+---------+---------¦
¦ ¦ ¦ ¦ ¦S. ¦
¦ ¦ ¦ ¦ ¦Antkies ¦...To continue reading
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