Steinle v. Commissioner , 19 B.T.A. 325 ( 1930 )

JOSEPH A. STEINLE, ADMINISTRATOR, ESTATE OF JOSEPH E. STEINLE, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

SANFORD P. STARKS, ADMINISTRATOR, ESTATE OF NILS O. STARKS, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

SANFORD P. STARKS, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

EMILIE T. WIEDENBECK, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

JOSEPHINE MACKIE, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

WILLIAM STEINLE, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

KATHERINE STEINLE, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

GEORGE A. STEINLE, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

LOUIS R. TAYLOR, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

CLINTON R. STEINLE, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

MARK SMITH, JR., PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

Steinle v. Commissioner

Docket Nos. 20932-20942.

United States Board of Tax Appeals

19 B.T.A. 325; 1930 BTA LEXIS 2427;

March 19, 1930, Promulgated

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">*2427 1. TRANSFEREES. - Certain of the petitioners, stockholders of the taxpayer corporation, not being shown by the proof to have received assets of the taxpayer directly or indirectly, it is held that they have no liability at law or in equity as transferees for an unpaid tax of the taxpayer.

2. Id. - Where the taxpayer, a corporation, purchases tangible assets from one of its officers and stockholders for a cash consideration and there is no evidence that the transaction was one made in bad faith or with intent to defraud creditors, or that it rendered the taxpayer corporation insolvent, it is held that respondent has failed to sustain the burden, placed upon him by section 402 of the Revenue Act of 1928, of proving a liability at law or in equity on the part of such officer and stockholder for the unpaid tax of the taxpayer.

Alonzo Peterson, Esq., for the petitioners.

Harold Allen, Esq., and F. R. Shearer, Esq., for the respondent.

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TRUSSELL

">*326 The petitioners appeal from the determination of the respondent that they, as transferees of the assets of a Wisconsin corporation, known as the Four Lakes Ordnance Co., are liable in">*2428 the following amounts for unpaid income and profits taxes of the corporation for 1919:

	Liability upon	Liability as heirs of	Aggregate
	alleged distri-	Dorothy M. Steinle,	liabilities
	butions upon	a former stockholder-
	capital stock-	distributee
	holdings
Joseph A. Steinle,
administrator, estate
of Joseph E. Steinle		$2,598.48	$2,598.48
Sanford P. Starks,
administrator, estate
of Nils O. Starks	$2,500.00		2,500.00
Sanford P. Starks	2,500.00		2,500.00
Emilie T. Wiedenbeck		2,598.48	2,598.48
Josephine Mackie		2,598.48	2,598.48
William Steinle		2,598.48	2,598.48
Katherine Steinle	1,000.00	7,503.47	8,503.47
George A. Steinle	5,500.00	2,598.48	8,098.48
Louis R. Taylor	1,000.00		1,000.00
Clinton R. Steinle	51,040.80		51,040.80
Mark Smith, jr	2,000.00		2,000.00
Total	65,540.80	20,495.87	86,036.67

Upon notice duly made and granted, the appeals were consolidated for purposes of hearing and decision.

The petitioners allege error in that (1) section 280 of the Revenue Act of 1926, under which the respondent is proceeding, is unconstitutional; (2) that the liabilities sought">*2429 to be asserted against the petitioners are barred by the statute of limitations; (3) that the tax liability of the Four Lakes Ordnance Co. for 1919 is not in excess of the sum of $8,000 of which the sum of $2,257.95 has heretofore been paid; (4) the petitioners have no liabilities at law or in equity as transferees of property of the Four Lakes Ordnance Co.

With respect to the liability of George A. Steinle, the respondent moved for an increase of the amount determined and advised of in the deficiency letter, to such extent as might be determinable upon the evidence.

FINDINGS OF FACT.

The several petitioners are residents of Madison, Wis.

In the fall of 1917, the Steinle Turret Machine Co., a Wisconsin corporation, hereinafter referred to as the Steinle Co., negotiated with the Navy Department a contract for the manufacture of 300 five-inch naval guns. At the suggestion of the Navy Department, in order to facilitate the accounting, it was determined to organize a corporation for the purpose of executing and performing this contract. Accordingly, in October, 1917, a Wisconsin corporation known as the Four Lakes Ordnance Co., hereinafter referred to as ">*327 the taxpayer, ">*2430 was organized. On October 25, 1917, at the first meeting of the stockholders, the following stock subscription was presented, read, and accepted by unanimous vote:

SUBSCRIPTION TO STOCK.

We, the undersigned, do each for himself, separately and severally, subscribe for and agree to purchase and pay for at par value, the number of shares set opposite our respective names of the capital stock of the Four Lakes Ordnance Company, a corporation now being organized under and pursuant to the laws of the State of Wisconsin, with an authorized capital of one hundred thousand dollars ($100,000.00), divided into one thousand shares (1000) of the par value of one hundred dollars ($100.00) each, at such times and in such manner as called for by the Board of Directors.

MADISON, WISCONSIN, October 25th, 1917.

Name	Number of shares	Amount
George A. Steinle	55	$5,500.00
Wm. R. Bagley	4	400,00
N. O. Starks estate, by Sanford P. Starks	25	2,500.00
Sanford P. Starks	25	2,500.00
Frank D. Reed	1	100.00
Dorothea M. Steinle, by Katherine Steinle	100	10,000.00
Katherine Steinle	10	1,000.00
Mark Smith, jr	20	2,000.00
Louis R. Taylor	10	1,000.00
Clinton R. Steinle	750	75,000.00

">*2431 Thereafter, in November, 1917, the certificates of stock of the taxpayer, par value $100 per share, were issued as follows:

Stockholder	Number of shares
George A. Steinle	55
Wm. R. Bagley	4
Estate of N. O. Starks	25
Sanford P. Starks	25
Frank D. Reed	1
Dorothea M. Steinle	100
Katherine Steinle	10
Mark Smith, Jr	20
Louis R. Taylor	10
Clinton R. Steinle	750
Total	1,000

The stockholders in the taxpayer company were also owners of the stock of the Steinle Co., with substantially the same proportionate interests in the two companies, with the exceptions that George A. Steinle held 805 shares of the Steinle Co. stock, and his son, Clinton R. Steinle, was not a stockholder in the Steinle Co. Dorothea M. Steinle at this time was about 80 years of age and was entirely inactive in the affairs of the Steinle Co.

Notwithstanding that the stock certificates of the taxpayer were issued as stated above, nothing was ever paid in for the stock. Clinton R. Steinle, who had no funds for investment in the stock issued to him, gave George A. Steinle his note, payable in one year, for the $75,000 par value of the stock, endorsed the stock certificate in blank, ">*2432 ">*328 and attached it to his note as collateral security. George A. Steinle gave to the Steinle Co. his note, payable on demand, for the aggregate $80,500 par value of his own stock and that issued to his son. Clinton, and he attached to this note his own stock certificate and that of his son, Clinton. All of the other stockholders signed notes payable to the Steinle Co. on demand, for the respective amounts of the par value of the stock issued to them, endorsed the stock certificates in blank, and attached them to the several notes. Excepting the note of Clinton R. Steinle, all of the notes and stock certificates were delivered to the Steinle Co. and were placed by the Steinle Co. in a safe vault at the bank. Thereafter, the Steinle Co. retained possession of the notes and stock certificates and it never surrendered them. In 1926 George A. Steinle, then an officer and the principal stockholder of the Steinle Co., mutilated the notes by cutting away parts of the signatures as he was accustomed to cut all notes which were no longer of value. The note of his son, Clinton, the $75,000, which he individually held, he marked "Paid, George A. Steinle." Nothing was ever paid">*2433 on any of the notes. The notes were not entered upon the books of the Steinle Co. and was never used by the Steinle Co. as collateral for loans.

A written contract was entered into in 1917 with the Navy Department by the taxpayer and guaranteed by the Steinle Co., for the manufacture of 300 guns, at a fixed profit to the taxpayer of $500 per gun, due and payable when the guns were accepted by the Navy Department. The contract further provided that such of the costs incurred by the taxpayer as were specified in the contract were to be reimbursed on a monthly basis to the taxpayer by the Navy Department. These costs included the necessary labor, material, tools and equipment, and also a building to be erected, but they did not include all of the actual expenses of the taxpayer. Due to unavoidable delays in receiving payments from the Navy Department, a large amount of cash capital was required for the conduct of operations, and all of it was obtained by the taxpayer through loans from the bank, loans from the Steinle Co., and loans from George A. Steinle, personally.

George A. Steinle was at all times entirely and solely in charge of the management and affairs of the taxpayer.

">*2434 In all, 200 guns were manufactured under the contract by the taxpayer and accepted by the Navy Department. Of these, 23 were shipped in 1918 and the balance in 1919. Of this total number three were accepted by the Navy Department in 1918, 87 in 1919, and 110 in 1920.

The orders for the remaining 100 guns called for under the contract were canceled. The payment of the profit of $500 per gun, or an aggregate of $100,000 for the guns accepted, was not received ">*329 until about March, 1920. Payments of costs allowed by the Navy Department were collected from time to time during operations. All of the borrowed money was repaid by the taxpayer.

The actual net profits remaining to the taxpayer in 1920 out of the gross income of $100,000 from the guns was at least $47,000, the reduction being due to the payment of expenses in excess of $50,000 for which the company was not reimbursed by the Navy Department. No dividends were ever declared or paid by the taxpayer.

In 1919 George A. Steinle purchased in his individual right about 25 "National" automobiles, together with various accessories and equipment necessary for the operation of a business of selling and servicing">*2435 automobiles. Thereafter, a business employing these assets was operated by Steinle under the name of the Auto Sales Repair Co. It was Steinle's intention to admit into the business his son, Clinton, and another young man. The latter, however, suddenly decided to accept another offer of employment from a relative. About this time the taxpayer was bringing to a close its work for the Navy Department. There was no market justifying the continuance of ordnance manufacture and it was necessary, if the corporation were to continue in business, that a new line of activity be adopted.

In December, 1920, Steinle sold to the taxpayer all of the assets of the Auto Sales Repair Co., including National automobiles, notes receivable, equipment and accessories for a consideration of $46,600. The consideration was paid to Steinle in cash.

This sale of assets was effected as a part of a plan adopted to have the taxpayer engage in the business of motor car sales and service and utilize its plant for body building and painting. An arrangement was being negotiated to secure the services of a local repair man with wide experience and also to secure the agency for the Cadillac motor car. Both">*2436 of these arrangements fell through. Shortly after, there came a general business depression, the manufacturer of the National automobiles went out of business and the taxpayer had great difficulty in making sales of the cars on hand.

The taxpayer filed a return for 1919 on March 15, 1920, reporting no gross income received and claiming deductions in an aggregate of $8,585.16. In 1922, it filed an amended return for 1919 reporting income and deductions, computing a tax as follows:

Gross income		$42,644.41
Deductions:
Ordinary and necessary expenses (no detail)	$9,357.92
Interest paid	3,981.58
Taxes paid	6,053.79
		19,393.29
Net income		23,251.12

 ">*330

Excess profits and was profits taxes on income
from Government contracts (1918 rates sec. 302)		$7,700.90
Income tax		1,355.02
Tax liability		9,055.92

In determining the deficiency of $51,040.88 for 1919 against the taxpayer, respondent has computed a net income of $82,194.54. In arriving at this amount he has included as income for 1919 the profit of $500 per gun on 177 guns shipped in 1919, and of which 90 were not accepted by the Navy Department until">*2437 1920, and has given credit for expenses as follows:

Entertainment	$63.80
Advertising	1,088.57
Taxes (capital stock)	125.00
Sundry items	23.36
Strike	242.25
Interest paid	3,901.59
Bonus to foreman	$1,000.00
Railroad fares	79.31
Overtime	333.00
Interest accrued	82.99
Liberty bond advert	10.00
	6,949.87

In addition to the above-listed expenses allowed by respondent, the taxpayer had other business expenses pertaining to the year 1919 and for which it was not reimbursed by the Navy Department, as follows:

Operating expenses of motor cars	$810.20
Traveling expenses	2,579.31
Heating	450.00
State and city taxes	5,928.79
Total	9,768.30

In determining the deficiency in question respondent has computed the invested capital of the taxpayer of $129,703.46, consisting of $116,203.46 representing loans of $100,000 made that company by the Steinle Co., plus accrued interest not collected, and $13,500 paid by the Steinle Co. for land on which was erected, at cost of the Navy Department, the building used in the manufacturing operations by the taxpayer. Neither of these items represented invested capital to the taxpayer for 1919.

">*2438 The gross income, allowable deductions, and net income of the taxpayer for 1919 were as follows:

Gross income (87 guns at $500 each
and spare parts at $644.41)	$44,144.41
Deductions (expenses)	16,718.17
Net income	27,426.24

The tax liability of the taxpayer for the year 1919, computed under section 302 of the Revenue Act of 1918, is as follows:

">*331

$3,000.00 exemption.
17,000.00 at 30 per cent	$5,100.00
20,000.00
7,426.24 at 80 per cent	5,940.99
	11,040.99
27,426.24
13,040.99
14,385.25 at 10 per cent	1,438.53
Total tax	12,479.52

Under date of October 29, 1924, the taxpayer and the Commissioner agreed in writing to extend the period for determination, assessment and collection of the 1919 taxes for a period of one year beyond the expiration of the statute of limitations; the company was notified by letter dated February 18, 1925, of a determination of a deficiency for 1919 in the amount of $51,040.88; the deficiency was assessed on May 12, 1925; the assets of the company, consisting of a number of National automobiles, one or two secondhand automobiles of other makes, a miscellaneous assortment of shop and garage">*2439 equipment and accessories, some notes and accounts receivable of doubtful value, and a small amount of real estate, were levied upon by the collector and sold in September and October, 1926, realizing net proceeds of $2,257.95 which were credited against the tax by the collector. The several notices of the proposed assessments of liabilities as transferees were mailed to the petitioners on September 8, 1926.

The taxpayer company has never been dissolved. The original stockholders are still the stockholders of record. No distributions or transfers of assets of the taxpayer company have been made directly or indirectly to any one of the several petitioners with exception of the above-described transfer of cash to George A. Steinle in exchange for an automobile business belonging to him personally.

OPINION.

TRUSSELL: In respect to the first issue - that section 280 of the Revenue Act of 1926, under which respondent proposes to assess these several alleged liabilities, is unconstitutional, the Board has held that where, as in the present case, the petitioners have invoked that section, to secure a redetermination, they may not question its validity. ">*2440 .

The second issue - that the time provided by the statute for assessment and collection expired prior to the determination and notice by respondent of the amounts proposed for assessment, was not urged by petitioners upon the hearing, and the record clearly shows ">*332 the existence of the conditions specified by section 280(b)(2) of the Revenue Act of 1926, and the action by respondent to have been taken, as provided, within one year from the date of the enactment of that act.

This leaves two issues for consideration - (a) whether the assessment made by respondent against the taxpayer of income and profits taxes for 1919 represents the correct tax liability of that company for that year, and (b) whether liabilities exist in law or in equity on the part of these several petitioners in respect of the tax liability of the taxpayer for the year 1919, as a result of the receipt by them of transferred assets of the taxpayer. In respect to the first of these two issues, the burden of proving the incorrectness of the assessment made by respondent is upon petitioners, and in respect to the second of the two issues, the burden of">*2441 proving the existence of liabilities in law or in equity on the part of these petitioners is placed upon respondent by section 602 of the Revenue Act of 1928, under which the hearing of this proceeding was had.

The record shows that, in determining the deficiency of $51,040.88 for 1919, respondent included in income for that year a profit of $500 per gun on 177 guns manufactured and shipped by the taxpayer during 1919, all of which were paid for in 1920. It is further shown that the contract under which these guns were manufactured for and delivered to the Navy Department provided for payment to be made by that department only upon acceptance of the guns after test, and that only 87 of the total number of guns shipped were accepted in that year, the test and acceptance of the balance being in 1920. It follows that, the obligation of the Navy Department to make payment for these guns accepted in 1920 not arising until that year, the profit of $500 per gun thereon was not subject to accrual by the taxpayer in 1919, but constituted income for 1920. The action of respondent in including the profit for the total number of 177 guns in 1919 resulted in an overstatement of income of">*2442 the taxpayer for that year in the sum of $45,000. The record further shows that the taxpayer had certain business expenses as set out in the findings of fact, representing proper deductions from gross income, in the total amount of $6,649.87, these being in addition to expenses allowed by respondent in determining the tax liability of that company. The adjustment of the income of the taxpayer by reduction of gross income by $45,000 and the allowance of the additional total of expenses incurred shows a correct net income for that year of $27,426.24 and a total tax liability of $12,479.52.

The question now for determination is whether or not these petitioners have liabilities under which they may be required by proceedings ">*333 at law or in equity to pay these tax liabilities of the taxpayer company or any part thereof by reason of their having received, by transfer, assets of that corporation.

Respondent contends that these several petitioners, together with Dorothea M. Steinle, constituted all of the stockholders of the taxpayer having individually subscribed to amounts totaling the entire $100,000, par value of that corporation's capital stock, and having paid in the">*2443 amounts of their subscriptions in promissory notes. He further contends that these notes represented assets held by the corporation and afterwards distributed to these subscribers by cancellation without collection. The liabilities proposed for assessment against these petitioners are prorated upon the percentage of their several stockholdings and as to six of the petitioners, additional liability is asserted upon the ground that they are heirs and distributees of the estate of Dorothea M. Steinle, whom it is charged received, as a stockholder, assets of the corporation by the cancellation of the note given by her upon her stock subscription.

The record shows clearly that these petitioners, together with Dorothea M. Steinle, subscribed to all of the $100,000 par value capital stock of the taxpayer and that the certificates of stock subscribed for were issued as subscribed.

It is further shown that notes made payable to the Steinle Turret Machine Co. were executed by these stock subscribers in the several amounts due the taxpayer from each, but that these notes were never delivered to or held by the taxpayer, but were delivered to and placed in the safe of the Steinle Turret">*2444 Machine Co. The record further shows that the only assets used by the taxpayer consisted of cash borrowed on its own promissory notes from the Steinle Turret Machine Co., from George A. Steinle, and from various banks, which were paid at maturity, and cash representing profits paid the corporation by the Navy Department under its contract for gun manufacture. The notes delivered to the Steinle Turret Machine Co. have never been collected and the stock as originally issued is still outstanding.

From the facts appearing is respect to these petitioner's nonpayment of subscriptions for $100,000 capital stock of the taxpayer, it would appear that they have liabilities to the corporation in this amount, the enforcement of which the corporate creditors could procure, and it also appears that the business of the corporation having been begun and carried on without the payment of 20 per cent of the authorized capital stock, the personal liability of stockholders to corporate creditors from such action provided by the Wisconsin statute may be enforced. These liabilities, however, if they exist, are not ones imposed upon these petitioners as transferees of the corporate assets.

">*334 ">*2445 Upon the facts we can not conclude that these several petitioners paid in to the taxpayer for their stock assets in amounts totaling $100,000, and thereafter received back in distribution assets of that company in similar amounts, and it being further shown that this corporation paid no dividends, and that none of the petitioners, other than George A. Steinle, received directly or indirectly, any of the corporate assets, it follows that the several petitioners are not shown to be, as a result of the transactions detailed, transferees of assets of the taxpayer with liabilities subject to assessment and collection under section 280 of the Revenue Act of 1926.

As to George A. Steinle, the situation is different from that existing with respect to the other petitioners, he being shown to have received $46,600 in cash from the taxpayer, this sum representing the consideration paid him for an automobile business transferred to the corporation in December, 1920. If there is a liability of this individual in respect to unpaid taxes of the corporation for 1919, it is one incurred as the result of the circumstances under which these assets of the corporation came into his hands.

In this">*2446 transaction this petitioner has not received assets of the corporation as a stockholder under a distribution, but as an individual, in a transaction in which assets have been transferred to and received by the corporation which were subject to the payment of its debts.

The liability sought to be established is not one of an officer of the corporation to stockholders, but to the corporate creditors, and in this connection, it must be borne in mind that this individual, as an officer of the corporation in charge of its affairs, stands in a different position with distinctly different obligations as to stockholders, from the position he occupies as to creditors. As to stockholders, he is a quasi-trustee liable for his acts if he has wilfully or negligently sacrificed the corporate property. ; ; ; ; ">*2447 ; . In case he deals with himself, the transaction is subject to the gravest suspicion and, on attack by stockholders, the burden is upon him to show it as fair and just and to the interest of the corporation. ; ; ; . In some jurisdictions the transaction is held to be voidable by the corporation without regard to whether it is fair. ; . As to creditors, however, his relation is not one of trustee, unless the corporation be insolvent, and even in such case the responsibility is measured by the rule that ">*335 corporate property must not be distributed to stockholders leaving corporate debts unpaid. It is well settled that the so-called trust fund doctrine is applied by the Federal courts within such limit. ">*2448 ; ; ; . As was said by the court in :

* * * The officers of a corporation act in a fiduciary capacity in respect to its property in their hands, and may be called to account for fraud, or sometimes even mere mismanagement, in respect thereto; but, as between itself and its creditors, the corporation is simply a debtor, and does not hold its property in trust or subject to a lien in their favor in any other sense than does an individual debtor.

The liability, if any, as an officer or director, with respect to a transaction in which property of the corporation has been disposed of for less than its value is one to the corporation and may be realized on by the creditors through appropriate action as any other asset of the corporation, but it can not be considered a liability of the officer to the creditors. ">*2449 ; ; ; ; ; ; ; ; .

It will thus be seen that there is no liability on the part of this petitioner to creditors merely upon the ground that, as an officer of the taxpayer, he lessened the corporate assets by purchasing from himself, with funds of the corporation, property at a price greater than its actual worth. If the transaction is one subject to attack by creditors, and the funds received may be followed into his hands, it is only upon the ground that the transaction was one made with intent to defraud creditors and, by leaving the corporation insolvent, had such effect, and in such case the burden is upon them to establish these facts. ; ">*2450 ; ; ; ; ; . Not only is the burden of proof so placed by a court of equity, but, in the case before us, section 602 of the Revenue Act of 1928, under which this proceeding was heard, specifically places upon respondent the burden of proving the liability charged.

The record shows that the taxpayer corporation was organized to perform a contract with the Navy Department for manufacture of ordnance and that upon completion of the work it was left with no further business, and, the war being ended, with no further market for such manufacture. It had available for its use the factory buildings in which its work had been done, the machinery having been removed by the Navy Department, to which it belonged. If the ">*336 corporation were to continue active life, some other line of activity would have to be provided. The corporation had recently been paid its profit on the contract performed and had in hand a substantial amount in cash over and above the">*2451 debts it owed. The petitioner, George A. Steinle, had at this time an automobile sales and service business which he had recently purchased. Included among the assets of this business were service equipment, 25 new National automobiles, and the local agency for the sale of these automobiles. This business with all of its assets was transferred by this petitioner to the taxpayer for $46,600 in cash.

It is testified that it was contemplated that the corporation would install a body building plant and secure the agency for an additional car, and negotiations were under way with an experienced man to take charge of the business. However, these plans failed to materialize and shortly afterwards a general business depression was experienced, making the sale of automobiles difficult, and, following this, the manufacturer of the National automobile went into the hands of receivers. After several years of attempted operation without success the taxpayer was left with some of the automobiles on hand, which although unused, were then of little value from depreciation and from the fact that they were models of previous years and the manufacturer was out of business. All of these assets">*2452 were distrained by the collector of internal revenue and brought at forced sale, in the latter part of 1926, net proceeds of $2,257.95.

It is insisted by this petitioner that the sale of this business to the taxpayer was a transaction made in good faith, and we fail to see in the evidence anything to the contrary. It is not shown what the cost was to this petitioner of the assets conveyed, but the character of the assets indicates a very substantial value. The testimony is that included in the assets were 25 new 8 and 12 cylinder automobiles. What, if any, indebtedness the transferred business had we do not know, but upon the respondent is the burden of proving the mala fides of the transaction, if it is one subject to question, and this petitioner, although he testified at length at the hearing, was not even asked this question.

We can not see in the evidence an indication of bad faith - an intent to defraud creditors in this transaction, nor is it shown that the assets conveyed were of less value than the consideration of $46,600 received from the taxpayer. We assuredly can not so conclude merely upon proof that after almost six years of unsuccessful operation, during">*2453 which a general business depression was encountered, the residue of the assets acquired brought at forced sale only $2,257.95. The proof shows the corporation to have been solvent at the time of this transaction and is insufficient to show that it was deprived thereby of assets necessary to meet its debts. In fact, we ">*337 can not even conclude that it now has insufficient assets for that purpose as the indicated liability of the stockholders upon their unpaid subscriptions, apparently enforceable by a receiver for the benefit of creditors, is largely in excess of any indicated indebtedness.

We hold that there is no liability at law or in equity shown to exist in respect to any one of these several petitioners as transferees of assets of the taxpayer corporation.

Judgment will be entered for the petitioners.