Sloss v. State

• Decision Date: 02 August 1956
• Docket Number: 6 Div. 28
• Citation: 264 Ala. 680,89 So.2d 174
• Parties: A. Page SLOSS v. STATE of Alabama.
• Court: Alabama Supreme Court

Page 174

89 So.2d 174

264 Ala. 680

A. Page SLOSS v. STATE of Alabama.

6 Div. 28.

Supreme Court of Alabama.

Aug. 2, 1956.

Pritchard, McCall & Jones and Victor H. Smith, Birmingham, for appellant.

John Patterson, Atty. Gen., and Willard W. Livingston and H. Grady Tiller, Asst. Attys. Gen., for appellee.

PER CURIAM.

The question on this appeal is whether appellant, who will be referred to as the taxpayer, is entitled to a deduction from his taxable income for 1951 for State income tax purposes, of an item designated on his return as 'Federal Income Taxes on Gimon Estates--a dissolved corporation, $17,450.49', and an item of $3819.10 designated as 'Interest Paid--Collector of Internal Revenue' (computed on said item of $17,450.49).

The factual situation is disclosed by the 'Stipulation of Facts' contained in the transcript, as follows:

'1. Appellant is an individual, residing in the City of Birmingham, Jefferson County, Alabama.

'2. The State of Alabama, appellee, by and through the State Department of Revenue, J. A. Stephens, Assistant Commissioner of Revenue, has heretofore on October 9, 1953 made a tentative assessment of income tax for the calendar year 1951 in favor of the State of Alabama against appellant of which the appellant had due notice and to which assessment written protest was duly filed by appellant. Appellant filed his return with said Department of Revenue of Alabama on a cash receipts and disbursement basis in 1951 and prior years.

'3. Thereafter on November 30, 1953 said assessment of income tax against appellant was made final for the said calendar year 1951 as follows:

Income tax $3,141.10

Interest on said tax from the date same became due to the date of the assessment 101.00

Additional interest from 10-9-53 to date 9.13

Total amount assessed 3,251.23

Tax previously paid 2,066.60

Balance of tax and interest due as of this date 1,184.63.

'4. Thereafter and on December 28, 1953 appellant filed notice of appeal from said final assessment with the Secretary of the Department of Revenue and with the register of this court. Appellant also executed and filed in this court a supersedeas bond, all as provided by law, and more particularly the provisions of Title 51, Section 140, Code of Alabama 1940.

'5. During the month of December, 1951, appellant, as transferee of the assets of the Gimon Estates, Inc., a dissolved corporation, paid to the Collector of Internal Revenue, Birmingham, Alabama, the sum of $17,450.49, federal income taxes, and $3,839.10 as interest on said tax. These payments were made as a result of the determination by John B. Dunlap, as Commissioner of Internal Revenue, dated November 30, 1951 wherein appellant was advised that the determination of income tax liability of Gimon Estates, Inc., Birmingham, Alabama for the taxable period January 1, 1948 to January 10, 1948 disclosed a deficiency in federal income tax of $41,548.77. Gimon Estates, Inc., an Alabama corporation, was finally dissolved on January 10, 1948, and its net assets after liabilities, were distributed as liquidating dividends to each of the stockholders of said corporation in the proportion that the number of the shares of stock owned by each share-holder bore to the whole number of shares of stock issued by said corporation and outstanding at that time.

'6. The sum of $17,450.49 was determined to be his prorata amount of the federal income tax, which was assessed by the Federal Government against the said dissolved corporation, and an assessment in this amount was made against appellant under section 311 of Internal Revenue Code of 1939 (Title 26 United States Code), 'as transferee of assets of Gimon Estates, Incorporated, Birmingham, Alabama,' the Gimon Estates, Inc., having been dissolved and all its assets transferred to its stockholders. This amount, together with statutory interest in the amount of $3,839.10 was paid by appellant to the Collector of Internal Revenue at Birmingham, Alabama, in December, 1951, and receipt was issued by the said collector to appellant acknowledging payment of said federal income tax and interest by appellant, as transferee aforesaid. Said federal income taxes were not paid on net income earned by appellant during the calendar year 1951, but were paid as the result of the assessment in December, 1951, as aforesaid, made against appellant, as transferee of the assets of Gimon Estates, Inc. These amounts were claimed by appellant as deductions from his income in his 1951 report to the Department of Revenue of the State of Alabama, but said department declined to allow said claimed deductions and disallowed the same. Appellant's liquidating dividends greatly exceeded said federal taxes and interest.

'7. In the event it is determined that the said federal income tax and interest as paid in December, 1951 were deductible in computing appellant's 1951 income taxes due under the Alabama Income Tax Law to the State of Alabama there would be no deficiency in tax or interest owing by appellant to the State of Alabama for the calendar year 1951, and the final assessment appealed from should be set aside in full. In the event such taxes and interest are held not so deductible, the final assessment of income tax appealed from should be confirmed and judgment should be entered against appellant in favor of the State of Alabama in the amount of $1,184.63, together with interest on $1,064.50 at the rate of 6% per annum from November 30, 1953 to the date of payment. If the court should rule otherwise than as aforesaid, the parties agree to furnish to the court a computation of any tax which may be due under the court's ruling, by stipulation.'

It is insisted by appellant that he was entitled to the deduction under section 385, as amended, Title 51, Code of Alabama (see, Pocket Part Code, section 385(4), which allows a deduction from income of a taxpayer 'the amount of federal income tax paid * * * within the taxable year,' imposed by authority of the United States. Appellant claims that as transferee of assets of the dissolved corporation if Gimon Estates, Inc., which assets were subject to the lien of the United States for a deficiency income tax for a period in 1948, he became personally liable for at least his pro rata part of the income tax deficiency of Gimon Estates, Inc., by virtue of section 311(a)(1), Title 26 U.S.C.A. of 1939 as amended. His pro rata share of said tax was assessed to him by the commissioner of internal revenue in the amount of the two items referred to above, and he paid the same in 1951. That all of this was a federal tax imposed by authority of the United States, and was therefore deductible. Section 311(a)(1), supra, is 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 chapter (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 chapter'.

The State contends that the assessment to appellant was not as a taxpayer, but a summary procedure to collect a tax chargeable as such to Gimon Estates, Inc.; and that although he became subject to the lien of the United States in the amount of the tax, it was not his duty to pay it as a taxpayer but he became liable to account by having become transferee of property which was subject to a lien held by the United States as security for a debt primarily owing by another.

The trial court approved the view advanced by the State Department of Revenue in this respect, accepted the reassessment made by the state department without a deduction of those items, and rendered judgment affirming it. The taxpayer has appealed, contending that the amount he paid with interest is for a tax imposed on him by authority of the United States. We do not find where this Court has defined the term as there used.

We think the claimed deduction is only allowable when the amount paid is for taxes imposed on the person paying it, who is the taxpayer on whom the tax as such is primarily laid by the United States. Section 311(a)(1), Title 26, supra, does not lay a tax on this taxpayer on account of any event which justifies a tax levy against him. It recognizes a liability for the amount of a tax laid on another in respect to an event for which the other is subject to the tax, to wit, the receipt of income. This taxpayer is not thereby subject to pay the amount as a tax laid on him but to account as the transferee of property which is subject to a lien held by the United States, and which is chargeable as a tax against another. The procedure under section 311, supra, has been held to be one for the speedy collection of the primary debt. Nunan v. Green, 8 Cir., 146 F.2d 352; Harrison v. Commissioner of Internal Revenue, 5 Cir., 173 F.2d 736; United States v. Kensington Shipyard and Drydock Corp., 3 Cir., 187 F.2d 709, 27 A.L.R.2d 708; Phillips-Jones Corp. v. Parmley, 302 U.S. 233, 58 S.Ct. 197, 82 L.Ed. 221; Phillips v. Commissioner of Internal Revenue, 283 U.S. 589, 51 S.Ct. 608, 75 L.Ed. 1289; 47 C.J.S., Internal Revenue, § 771, p. 1009, note 11 contains many citations, also page 1010, note 22, and § 779, page 1043, notes 24 and 25.

In Phillips-Jones Corp. v. Parmley (both appeals), supra, the United States Supreme Court held that when corporate assets are distributed to stockholders upon dissolution of the corporation which was indebted to the United States on a deficiency assessment...