PARAMOUNT WARRIOR v. Commissioner
| Citation | 1976 TC Memo 400,35 TCM (CCH) 1805 |
| Decision Date | 30 December 1976 |
| Docket Number | Docket No. 9271-72. |
| Parties | Paramount Warrior, Inc., Transferee of Paramount Pacific, Inc. (formerly Macco Corporation), Transferor v. Commissioner. |
| Court | United States Tax Court |
William R. Nicholas, Robert K. Burgess, Thomas G. Bost, William C. Bottger Jr., and Austin H. Peck, Jr., 555 South Flower St., Los Angeles, Calif., for the petitioner. H. Lloyd Nearing, for the respondent.
Memorandum Findings of Fact and Opinion
Respondent has determined that petitioner is liable as a transferee in respect of the following deficiencies in Paramount Pacific, Inc.'s Federal income tax liability as follows:
Year Deficiency
1957 ............... $1,038,061.35
1958 ............... 14,797.16
1959 ............... 9,379.39
1960 ............... 64,585.83
The sole issue is the validity of certain agreements extending the period of limitations as against the petitioner, which concedes that it is a transferee within the meaning of section 6901.1 The parties have agreed to the amount of such transferee liability, if we hold for respondent.
Macco Corporation (Macco) was a Nevada corporation with its principal office at Paramount, California. For the years 1957, 1958, 1959, and 1960, it filed Federal income tax returns with the District Director of Internal Revenue at Los Angeles, California.
Macco and its wholly owned subsidiaries were engaged primarily in the general construction contracting business. On July 1, 1967, its name was changed to Paramount Pacific, Inc. (Pacific) but the business operations were not affected.
By the end of September, 1968, Zapata Off-Shore Company (Zapata) had acquired 98 percent of Pacific's issued and outstanding stock. On April, 1969, Zapata incorporated petitioner, Paramount Warrior, Inc., (Warrior) under the laws of the State of Delaware. Warrior has always been a wholly-owned subsidiary of Zapata. On September 30, 1969, Pacific and its subsidiaries were merged into Warrior. Petitioner had its principal office in Houston, Texas, at the time of the filing of the petition herein.
At some time prior to February, 1963, Macco's tax returns for the years 1954 through 1960 were audited by respondent's agents. Mr. Max Green of the Los Angeles Appellate Division was assigned to review a settlement proposal for these years. On or about July 31, 1963, Macco's return for the year 1961 was audited by Revenue Agent McCullough. The primary question involved in the audit of the 1961 return was the validity of a claimed loss resulting from a joint venture. Portions of this loss were carried back to the taxable years 1957 through 1960. Action on the returns for the years 1957-1961 was delayed by oral agreement (reached during February 1966), pending resolution of the question of this loss, which was being handled by the New York City District Director's office.
Prior to the merger, agreements with the respondent (Form 872) were executed in the name of Macco or Pacific which extended the period during which respondent could assert a deficiency for the years 1957-1961. Agreements executed during the period February, 1961, through February 8, 1968, were signed in the name of Macco by Callum MacLeod, vice president of Macco/Pacific, or Henry Diehl, attorney for Macco. Sidney Peizer (Peizer), treasurer of Macco/Pacific signed the last premerger agreements on November 26, 1968, which extended the period of limitations until March 31, 1970. In these agreements, Peizer struck out the name "Macco Corporation" and substituted "Paramount Pacific, Inc. Formerly Macco Corporation." Peizer signed Pacific's Federal income tax returns for 1967 on September 5, 1968, and for the period ending May 31, 1968, on June 12, 1969.
Macco's tax returns for the taxable years 1962-1965 were assigned for audit to Revenue Agent Edwin Frank in March, 1966. During this audit, Peizer was responsible for providing the agent with the information requested concerning Pacific's operations. The audit was substantially completed in or about June, 1967, but the final agent's report was not submitted until October, 1969. The delay was due to the investigation of the aforementioned joint venture. Agreements extending the statute of limitations period for the years 1962-1965 were executed on March 14, 1969, by Peizer on behalf of Pacific.
The merger of Pacific and its subsidiaries into Warrior was carried out pursuant to the laws of California, Delaware, and Nevada. Under the terms of the merger agreement, the separate existence of Pacific was to cease when the merger became effective, i.e., September 30, 1969; the surviving corporation (Warrior) was to be governed by the laws of the State of Delaware; and the certificate of incorporation and the by-laws of Warrior were to serve as the certificate and by-laws of the surviving corporation. The agreement further provided:
On the day of the merger, Warrior's board of directors held a special meeting. "In order to preserve the good will and continuity of operations of the various constituent corporations," the board resolved that the business operations of each of the constituent corporations would be carried on by a separate division of Warrior, with each division having the same management as the constituent corporation had prior to the merger. Peizer was selected as controller of each of the divisions of Warrior which formerly had been conducted through Pacific and its subsidiaries. He was also elected an assistant secretary of Warrior.
On September 26, 1969, Zapata notified the Southwest Service Center of the Internal Revenue Service at Austin, Texas, that certain subsidiaries of Zapata were being merged into Warrior. On October 7, 1969, Zapata notified the Southwest Service Center that Pacific was one of the corporations that was merged into Warrior. In this correspondence, Zapata requested new Employer Identification numbers for each division of Warrior.
Subsequent to the merger of Pacific into Warrior, Form 872 agreements were signed by Peizer as treasurer of Pacific: on October 28, 1969, for the years 1962-1965; on December 2, 1969, for the years 1957-1961, extending the period of limitations for these years until February 28, 1971. Additional agreements covering all the foregoing years were signed by Peizer on September 8, 1970, (years 1962-1965), and November 16, 1970, (years 1957-1961), extending the period of limitations for the years involved herein until November 30, 1971. The latter agreements were signed by respondent on November 19, 1970. These post-merger agreements were prepared by the Internal Revenue Service. No mention was made in the agreements of the fact that Pacific had been merged into Warrior. The corporate name used on these forms and on whose behalf Peizer purported to act was "Paramount Pacific, Inc. (formerly Macco Corporation)."
Respondent issued a 30-day letter to Pacific and certain of its subsidiaries for the taxable years 1962-1965 on March 3, 1970. On March 25, 1970, a law firm representing Pacific requested an extension of time for filing a protest. A power of attorney, executed in the name of Pacific and signed by Peizer, as treasurer, was sent by that law firm to respondent on April 7, 1970. Neither the letters nor the power of attorney made any mention of the merger of Pacific into Warrior. On May 26, 1970, the law firm wrote to respondent requesting an additional 15 days in which a protest could be filed. The letter stated in part:
The reasons for requesting the extension are as follows. In 1968 the above corporations including Pacific...
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