Wire Wheel Corporation of America v. COMMISSIONER OF INTERNAL REVENUE
| Decision Date | 28 May 1929 |
| Docket Number | Docket No. 26555. |
| Parties | WIRE WHEEL CORPORATION OF AMERICA, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. |
| Court | U.S. Board of Tax Appeals |
Hugh Satterlee, Esq., and A. S. Lisenby, Esq., for the petitioner.
John D. Foley, Esq., for the respondent.
This is a proceeding under section 280 of the Revenue Act of 1926 to subject the petitioner to the payment of a deficiency in income and profits taxes asserted by the respondent in the amount of $177,918.10 for the three-month period ended March 31, 1917, against the Houk Manufacturing Co., Inc. By order, the hearing was limited to the issues of the statute of limitations and the constitutionality and applicability of section 280 of the Revenue Act of 1926, and was continued otherwise.
FINDINGS OF FACT.
The Houk Manufacturing Co., Inc., was organized in October, 1913, under the laws of the State of New York, with an authorized capital stock of 4,000 shares of preferred stock and 5,000 shares of common stock, all of the par value of $100 per share. It manufactured detachable wheels, portions of wheels, and wire wheels for automotive vehicles.
The petitioner was organized on January 5, 1917, under the laws of the State of New York, with an authorized capital stock of 50,000 shares of preferred stock at the par value of $100 per share, and 100,000 shares of common stock without par value, for the purpose of acquiring patents in the United States pertaining to wire wheels and manufacturing of the wheels.
On or about April 1, 1917, the petitioner acquired the entire issue and outstanding capital stock of the taxpayer.
On July 23, 1917, the Houk Manufacturing Co., Inc., was merged into the petitioner under section 15 of the stock corporation law of the State of New York. It is stipulated that the assets of the Houk Manufacturing Co., Inc., when the merger was effected, had a value in excess of the deficiency (and interest) at issue.
On or about April 27, 1918, within the period of extension granted therefor the petitioner filed with the collector of internal revenue at Buffalo, N. Y., an income and profits-tax return for 1917. Before filing that return an officer of the petitioner visited the collector's office at Buffalo and requested information of a deputy collector as to method of filing returns for the Houk Manufacturing Co., Inc., and the petitioner, and was instructed to make out one return for both companies. Returns were accordingly prepared on that basis and the return of the Wire Wheel Corporation of America purported to include the income of the Houk Manufacturing Co., Inc., for the first three months of 1917 and its own income for the remainder of the year. Schedules attached to the return segregated various items of income and expenses of the Houk Manufacturing Co., Inc., and the petitioner.
On September 23, 1922, a revenue agent made a separate report upon the income of the Houk Manufacturing Co., Inc., for the period January 1, 1917, to March 31, 1917, and arrived at a deficiency in tax for that period of $219,594.49.
On February 8, 1923, the Commissioner of Internal Revenue issued a letter to the Houk Manufacturing Co., Inc., indicating an additional tax liability for the same period of $229,450.58.
On or about February 13, 1923, Houk Manufacturing Co., Inc., by its president and D. H. Blair, Commissioner of Internal Revenue, executed an income and profits-tax waiver covering any taxes due from the Houk Manufacturing Co. for the year 1917, and consenting to a determination, assessment and collection thereof for one year from the date it was signed by the taxpayer.
On February 7, 1924, the Commissioner of Internal Revenue issued a letter to the Houk Manufacturing Co., indicating an additional tax liability for 1917 of $115,090.68 and stated that a jeopardy assessment of that amount would be made. A jeopardy assessment in the amount of $115,090.68 was made against the Houk Manufacturing Co., on February 9, 1924. The Houk Manufacturing Co., Inc., thereupon filed claim without bond for the abatement of such tax.
On November 23, 1925, the Commissioner of Internal Revenue issued another letter to the Houk Manufacturing Co., Inc., with respect to its tax liability for 1917, indicating a deficiency in tax of $61,868.88 in addition to the deficiency of $115,090.68 theretofore assessed, and rejected the taxpayer's claim for the abatement of said $115,090.68.
On January 9, 1926, the Commissioner of Internal Revenue issued a deficiency letter addressed to the Houk Manufacturing Co., Inc., confirming the determination of a deficiency of $61,868.88.
On May 29, 1926, the Commissioner assessed against the Houk Manufacturing Co., Inc., additional income and profits taxes for 1917 in the amount of $61,868.88, together with interest in the amount of $958.54.
On February 15, 1927, the Commissioner addressed a letter to the petitioner proposing an assessment against it of $177,918.10, said to constitute its liability as transferee of the assets of Houk Manufacturing Co., Inc.
No part of said additional tax has been paid and no suit or proceeding for the collection thereof has been begun other than the present proceeding.
The assets of the Houk Manufacturing Co., Inc., at the time of the merger had a fair value in excess of $177,918.10, the amount of tax in issue plus interest thereon.
The Houk Manufacturing Co., Inc., as such, filed no income or profits-tax return covering the period from January 1, 1917, to March 31, 1917.
As we view this case it is clear that the petitioner is not liable as a transferee under section 280 of the 1926 Act. Section 15 of the New York stock corporation law, under which the Houk Manufacturing Co. and petitioner were merged in 1917, reads as follows:
SEC. 15. Merger. Any domestic stock corporation and any foreign stock corporation authorized to do business in this state lawfully owning all the stock of any other stock corporation organized for, or engaged in business similar or incidental to that of the possessor corporation may file in the office of the secretary of state, under its common seal, a certificate of such ownership, and of the resolution of its board of directors to merge such other corporation, and thereupon it shall acquire and become, and be possessed of all the estate, property, rights, privileges and franchises of such other corporation, and they shall vest in and be held and enjoyed by it as fully and entirely and without change or diminution as the same were before held and enjoyed by such other corporation, and be managed and controlled by the board of directors of such possessor corporation, and in its name, but without prejudice to any liabilities of such other corporation or the rights of any creditors thereof. Any bridge corporation may be merged under this section with any railroad corporation which shall have acquired the right by contract to run its cars over the bridge of such bridge corporation.
Section 15 is now substantially incorporated in section 85 of the laws of 1923.
Where a corporation is merged into a second corporation under this statute, the first corporation's "existence is retained for the one purpose of carrying out in good faith the reservation in the statute of the rights of the creditors thereof * * * the * * * company may be sued," and a creditor "obtaining judgment against the * * * company, may by execution or otherwise, reach the assets of such company as though the merger had never taken place." Irvine v. New York Edison Co., 207 N. Y. 425; 101 N. E. 358. That case held that the merging corporation, which continued in existence, was not liable to the creditors of the merged corporation. The action was not an equitable one, but the court cites Trotter v. Lisman, 199 N. Y. 497; 92 N. E. 1052, to the effect that before such creditors may seek the aid of equity against the merging corporation they must recover judgment against the debtor corporation and show the return of execution thereon unsatisfied. That the Irvine case, supra, did not lightly reach such conclusion is shown by excerpt from that opinion as follows:
The provisions of the merger statute and of the consolidation statute were considered together by the Legislature in ...
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