Wurtsbaugh v. Commissioner , 13 T.C. 1059 ( 1949 )

J. T. Wurtsbaugh, Transferee, Petitioner, v. Commissioner of Internal Revenue, Respondent

Wurtsbaugh v. Commissioner

Docket No. 15321

United States Tax Court

13 T.C. 1059; 1949 U.S. Tax Ct. LEXIS 7;

December 22, 1949, Promulgated

---

">*7 Decision will be entered under Rule 50.

On October 31, 1940, Lodwick Lumber Co. entered into an executory contract for the sale of certain timber and lease of certain land to which it held title. In December 1940, prior to the completion of this transaction, Lodwick Lumber Co. liquidated and transferred all of its assets to its shareholders. On January 21, 1941, the former shareholders completed the sale of timber and the lease of the land negotiated by the company. Based on income realized from the sale, respondent determined deficiencies in Lodwick Lumber Co.'s income tax and declared value excess profits tax for 1941 plus penalties for failure to file income and declared value excess profits tax returns for that year. Respondent asserted liability for these deficiencies and penalties against petitioner as transferee of the assets of the corporation. On the facts, held, that (1) Lodwick Lumber Co. realized taxable income in 1941 from the sale of the timber and lease of the land; (2) Lodwick Lumber Co. incurred liability for declared value excess profits tax in 1941; (3) Lodwick Lumber Co. was not liable under section 291 (a) of the Internal Revenue Code for failure ">*8 to file income tax and declared value excess profits tax returns in 1941; and (4) petitioner was liable as a transferee of assets of Lodwick Lumber Co. on liquidation for tax deficiencies of the company for 1941.

Walter E. Barton, Esq., for the petitioner.

D. Louis Bergeron, Esq., for the respondent.

Hill, Judge.

---

HILL

">*1059 Respondent determined deficiencies in income tax and declared value excess profits tax against Lodwick Lumber Co., for the calendar year 1941 in amounts of $ 25,948.22 and $ 8,181.90, respectively, and also determined penalties against it for failure to file income and declared value excess profits tax returns for that year in the respective amounts of $ 6,487.06 and $ 2,045.48. The total amount of these deficiencies and penalties was asserted against ">*9 petitioner as a transferee of assets of the company on liquidation. There are four principal questions to be determined in this proceeding.

(a) Did Lodwick Lumber Co. realize taxable income in 1941 from the sale of timber and lease of land to Southern Kraft Corporation?

(b) Did Lodwick Lumber Co. incur liability for declared value excess profits tax in 1941?

(c) Was Lodwick Lumber Co. liable for penalties for failure to file income and declared value excess profits tax returns for 1941 under section 291 (a) of the code?

(d) In the event that Lodwick was liable for such taxes and/or penalties in 1941, was respondent estopped from asserting liability therefor against petitioner as a transferee of Lodwick on liquidation?

">*1060 FINDINGS OF FACT.

Part of the facts were stipulated, including the entire record, findings of fact, opinion, and decision of this Court in the earlier proceeding of J. T. Wurtsbaugh, 8 T.C. 183. The facts as stipulated are so found, with the exception of the finding of fact in J. T. Wurtsbaugh, supra, that the income realized on the sale of timber and lease of land to Southern Kraft Corporation">*10 was in the amount of $ 92,692.27. Instead, we find here that the income so realized was $ 92,479.77.

Petitioner is an individual, residing in Shreveport, Louisiana, who filed his returns with the collector of internal revenue for the district of Louisiana, at New Orleans. He was primarily responsible for incorporating the Lodwick Lumber Co. (hereinafter referred to as Lodwick), under the laws of Louisiana in 1909. Lodwick filed its returns on the accrual and calendar year basis with the collector of internal revenue for the district of Louisiana at New Orleans. Corporate purposes of Lodwick set forth in its charter were to "own, manufacture, buy and sell lumber and lumber products, timber and timber lands * * *." The company's principal offices were located in Shreveport. From 1926 until the time of its liquidation in 1940 petitioner was president, general manager, and majority stockholder of the company.

Lodwick acquired in 1919 or 1920, 2,500 acres of land in Tyler County, Texas, upon which a sawmill was situated. It cut timber from this tract and sawed such timber into lumber at the sawmill until about 1932, after which time these operations were discontinued because they">*11 had become unprofitable. After 1932 the company disposed of certain locomotives, railroad and logging equipment, wagons, and mules which had been used in connection with these operations. On December 31, 1935, Lodwick exchanged approximately 249 acres of this land, including the sawmill, for 180 shares of its stock held by petitioner. In 1931 Lodwick acquired 5,000 acres of land in Red River County, Texas, but it never conducted lumber operations thereon and finally sold this tract in September 1935. Sometime after 1935 the company officials informally agreed to liquidate.

On October 6, 1934, at a sheriff's sale, the company acquired 10,000 acres of land in Bossier Parish, Louisiana, at an approximate cost of $ 82,500. Within a year after this acquisition, litigation was instituted in the Louisiana courts challenging the company's title to this land. Any action pursuant to the informal decision to liquidate was postponed by this title controversy. This litigation continued until January 9, 1940, at which time the Supreme Court of Louisiana decided the question in favor of Lodwick. The Supreme Court of Louisiana denied rehearing with respect to this decision on February 5, ">*12 1940.

">*1061 On February 8, 1940, the company paid a cash dividend of $ 4.50 a share to its stockholders, or a total of $ 9,360. No resolution was passed with respect to this distribution.

In July 1940 Lodwick filed its capital stock tax return for the year ended June 30, 1940, and stated therein as the value of its capital stock the amount of $ 245,665.37.

On October 31, 1940, Lodwick's directors passed the following resolution:

Be It Resolved: that J. T. Wurtsbaugh, the President of this corporation, be and he is hereby authorized and empowered to contract to sell upon such terms and conditions as to him may seem wise, the land or any right in and to the land, as well as the timber, wood and forest products located upon the same, the said land being located in Bossier Parish, Louisiana; it being the intention to authorize the said President to enter into a contract to sell all or any portion of the lands of the said corporation located in said parish, and without limiting the general authority he is specifically authorized and empowered to enter into a contract to sell the same in accordance with the terms and conditions set out in a tentative contract, copy of which has been">*13 filed in the archives of this corporation.

The tentative contract referred to in the above quotation had been prepared after preliminary negotiations by attorneys representing Lodwick and attorneys representing Southern Kraft Corporation, the prospective purchaser, hereinafter referred to as Kraft. On October 31, 1940, a contract was signed by J. T. Wurtsbaugh on behalf of Lodwick, which was then signed on November 4, 1940, by J. H. Friend on behalf of Kraft. This contract provided in part:

That for the consideration and upon the terms and conditions herein set out Seller has agreed to sell or cause to be sold and Buyer has agreed to buy, all of the timber of every size, kind and character standing, growing and being situated upon the property described in copy of proposed deed attached to this contract as Exhibit "A".

The proposed deed referred to in the above quotation as Exhibit "A" described the 10,000-acre tract in Bossier Parish, Louisiana, and was in form a conveyance of the timber thereon and a lease of the land for a period of 60 years. By the terms of the contract of October 31, 1940, Kraft agreed to purchase the timber and lease the land for a cash consideration of">*14 $ 150,000 and Lodwick agreed to sell at such price. The price was subject to a reduction in the event title failed to portions of the tract. The agreement to purchase was conditioned on title approval. It was further provided that if the sale was not consummated by February 1, 1941, either party not responsible in bad faith for such delay could withdraw from the contract. With respect to the possibility that Lodwick might liquidate prior to consummation of the sale, the contract recited:

The Buyer recognizes that the Seller contemplates liquidating and winding up its affairs as a corporation in the immediate future and that such liquidation ">*1062 will probably be consummated prior to the execution of the deed and conveyance of the property, and any transfer to liquidators, stockholders or other parties of the rights of the Seller shall be subject to the obligations imposed by this contract.

On December 5, 1940, the stockholders consented in writing to the company's liquidation, and J. T. Wurtsbaugh was thereby appointed liquidator without bond, with full power to dispose of the assets. This consent was recorded December 10, 1940. On December 13, 1940, Wurtsbaugh, as liquidator, ">*15 conveyed the 10,000-acre tract of land located in Bossier Parish, Louisiana, to the stockholders in proportion to their stockholdings. This conveyance contained the following paragraph:

The transferees herein acknowledge that they are familiar with that certain contract entered into by The Lodwick Lumber Company, the corporation, with the Southern Kraft Corporation, of Bastrop, Louisiana, of date, October 31st, 1940, which is specifically made a part hereof for greater certainty, and that each of them specifically assumes the obligations of The Lodwick Lumber Company as contained in the said contract, and bind and obligate themselves to perform all of the obligations of the said Lodwick Lumber Company as set forth therein.

The conveyance further recited that "This conveyance is made for and in consideration of the surrender of each of the transferees herein of all of his stock in The Lodwick Lumber Company and is in partial liquidation of the affairs of the said corporation."

On December 27, 1940, J. T. Wurtsbaugh, as liquidator, transferred to the former stockholders, in proportion to their former holdings, all the remaining property of the company of whatsoever kind and wheresoever">*16 situated, "it being the intention to completely liquidate * * * all of the assets of the said corporation * * *."

The former stockholders of Lodwick then formed a partnership, each partner's interest corresponding proportionately to his stockholdings in the company. All the assets which were transferred to the stockholders in liquidating the company were held by this partnership. The assets and liabilities acquired by the partnership as a result of the liquidation were entered on the partnership books as of January 1, 1941, as follows:

Assets
Bills receivable	$ 18,700.00
Furniture and fixtures	305.94
Real estate	12,532.06
Bossier Parish timber	150,000.00
Mineral rights	65,000.00
Agnes R. Horkrider	417.94
Hicksbaugh Lbr. Co	339.14
L. G. Morgan	6.84
L. G. Smith	686.34
L. G. Smith sawmill	908.60
J. T. Wurtsbaugh	1,970.73
D. Wurtsbaugh estate	213.48
Total	251,081.07
Liabilities
Bills payable	$ 38,500.00
Ruth Grey Knighton	3,143.50
L. M. Moffitt	239.00
J. P. Wurtsbaugh	879.53
Jewel Wurtsbaugh	318.93
Laura V. Scovell	.11
Copartnership	208,000.00
Total	251,081.07

">*1063 Wurtsbaugh and his wife filed separate income tax returns for">*17 1940 and failed to include therein the capital gains they realized from exchanging Lodwick stock owned by them in community for a proportionate share of the company's assets distributed to them at the time of liquidation. Respondent determined a deficiency in the income tax of both Wurtsbaugh and his wife for 1940 in the amount of $ 416.29, resulting from the capital gain they realized from the liquidation of Lodwick. In computing their portion of the net distribution of the corporation respondent used the total fair market value of Lodwick's assets on liquidation, less only the liabilities assumed by the stockholders. Wurtsbaugh and his wife paid their respective deficiencies and then filed a blanket claim for refund thereof. The Commissioner has never refunded any part of the amounts claimed.

On January 21, 1941, the former stockholders of Lodwick to whom the Bossier tract had been transferred signed an instrument conveying the timber upon such tract and granting a 60-year lease on the land to Kraft. This instrument was, with minor exceptions, the same as the proposed deed which had been referred to and attached as Exhibit A to the contract of October 31, 1940, between Lodwick">*18 and Kraft. On January 21, 1941, a check for $ 150,000 drawn by Kraft was delivered to the stockholders in payment of the conveyance and lease. This check had been made payable to Kraft's attorneys, who in turn had endorsed it to the company's former stockholders, who in turn had endorsed it for deposit in their partnership account. After the receipt of this $ 150,000 check the partnership paid the company's liabilities as they had existed on December 27, 1940, and the following amounts were received or credited to the partners during 1941:

J. T. Wurtsbaugh	$ 75,126
J. P. Wurtsbaugh	19,323
L. M. Moffitt	10,944
J. H. Jordan	1,254
Hicks Co., Ltd	4,731
Laura V. Scovell	4,617
T. Hampton Scovell	513
Mary V. Long	513
Florence L. Vaughan	513
Ruth W. Knighton	1,026
Total	118,560

From November 7, 1940, to February 5, 1941, numerous letters were exchanged between the attorneys representing the company and the attorneys representing Kraft. These letters dealt with various details concerning the final sale. In a letter dated November 7, 1940, Kraft's attorneys stated to the company's attorneys that with certain minor exceptions "the agreement as submitted is entirely">*19 satisfactory." The agreement referred to in the above quotation is the proposed conveyance of the timber and the lease of the land. On December 2 Kraft's attorneys, in a letter to the company's attorneys stated, among other things, that "as a whole the abstract will be found to be sufficient," referring to the abstract of title with respect to the Bossier ">*1064 Parish lands. On February 5, 1941, Kraft's attorneys submitted their final title opinion, having submitted a preliminary opinion earlier, which preliminary opinion was relied on in making the conveyance and lease on January 21, 1941. In the course of this correspondence the attorneys representing the company, in writing Kraft's attorneys, urged haste in the following language:

2. You are advised that it is contemplated by the Lodwick Lumber Company and its stockholders that the corporation will be liquidated before this transaction is completed. We have drawn the liquidation papers which are in the process of being filed and completed. * * *

* * * *

We shall appreciate it if you will carefully scrutinize these papers and indicate whether or not they meet with your approval. If they do not, please advise what changes">*20 you desire to have made. This phase of the matter is sufficiently urgent that we request that you call us at our expense by long distance phone as quickly as possible after you have looked over these papers. Our clients wish this liquidation to go into effect at the very earliest opportunity.

During the year 1941 the partnership of former stockholders of Lodwick paid the following expenses in connection with the Bossier Parish land: $ 30 for title and abstract work, $ 165 for revenue stamps, and $ 17.50 for cancellation fees, all in connection with the sale of timber and lease of land to Kraft on January 21, 1941; $ 4,350 on January 21, 1941, for interest on purchase money notes of Bossier Parish tract; and $ 372.25 on February 3, 1941, for attorney's fees to complete the sale to Kraft. The partnership also reimbursed Wurtsbaugh for $ 2,518.09 he paid on December 31, 1940, to satisfy real estate taxes for 1940 on the Bossier Parish land. In addition to these expenses the former partners on March 11, 1941, paid $ 250 as tax and accounting service fees for the preparation of Lodwick's 1940 tax returns.

On March 8, 1941, Lodwick filed its income, declared value excess profits and">*21 defense tax return for the calendar year 1940, reporting a net loss of $ 1,796.76. In a schedule attached to this return it was stated that the company had liquidated on December 27, 1940.

On May 27, 1941, the Secretary of State of Louisiana issued a certificate of final dissolution of Lodwick.

Lodwick filed no tax returns for the calendar year 1941. On June 19, 1942, respondent wrote the company, stating that no returns had been received from it for 1941. Petitioner, as the company's former president, noted in response to this communication that the company had been dissolved in 1940. Such returns were only due if Lodwick realized income in 1941 from the sale to Kraft. Petitioner's position was and is that Lodwick realized no income from the transaction with Kraft either in 1940 or 1941. Respondent contended in the earlier proceeding, J. T. Wurtsbaugh, supra, that the sale became a closed transaction in 1940 and Lodwick accrued income therefrom at that ">*1065 time. We did not sustain respondent in that contention. It was only after our decision in that proceeding that respondent determined that income in such transaction was realized by ">*22 Lodwick in 1941. Whether Lodwick realized such income at all, or, if so, in what year it was realized, is a question which invites controversy. The failure by Lodwick to file tax returns in 1941 was due to reasonable cause.

A purported capital stock tax return was filed September 29, 1941, in the name of Lodwick for the year ended June 30, 1941. The return was signed and sworn to by J. T. Wurtsbaugh as president and L. M. Moffitt as secretary and treasurer of Lodwick. Also, on July 18, 1947, a purported capital stock tax return for and in the name of Lodwick for the year ended June 30, 1941, was tendered to, and received by, the collector of internal revenue for the district of Louisiana. The return was executed by the persons who were the stockholders of Lodwick at the time of its liquidation. The return stated the declared value of the capital stock of Lodwick for the year ended June 30, 1941, to be $ 950,000 and that Lodwick was inactive during such year. The collector refused to accept or file it as a valid return and returned it to J. T. Wurtsbaugh, who is the petitioner in this proceeding.

In a statutory notice of deficiency dated June 17, 1947, respondent notified petitioner">*23 that the determination of the income and declared value excess profits tax liability of Lodwick for the year 1941 disclosed a deficiency of $ 25,948.22 in income tax and $ 6,487.06 in penalty, and a deficiency of $ 8,181.90 in declared value excess profits tax and $ 2,045.48 in penalty. It further stated that such deficiencies and penalties would be assessed against petitioner as transferee of assets of Lodwick. The deficiencies resulted solely from a determination that Lodwick received taxable income during 1941 in the amount of $ 92,692.27 from the sale of timber and lease of land to Kraft. The penalties were imposed due to the failure of Lodwick to file tax returns for the calendar year ended December 31, 1941.

The sale of timber and lease of land to Kraft consummated on January 21, 1941, was in substance the sale of Lodwick, from which it realized income of $ 92,479.77.

OPINION.

In deciding the liability of petitioner as a transferee for tax deficiencies determined by respondent against Lodwick for the calendar year 1941, the first question for our consideration is whether Lodwick realized income in 1941 from the sale of timber and lease of land to Kraft. Respondent contends">*24 that the sale was in actuality made by Lodwick and it thereby received taxable income of $ 92,692.27 in 1941. He argues that in transferring the timber and leasehold to Kraft on January 21, 1941, the former shareholders were ">*1066 merely agents of Lodwick, serving as conduits of title. Respondent relies primarily on the doctrine of Commissioner v. Court Holding Co., 324 U.S. 331">324 U.S. 331, to support his view of the transaction. Petitioner, on the other hand, contends that the former stockholders of Lodwick realized the income arising from the sale to Kraft. He contends that the sale was in reality made by the shareholders and that, in so far as Lodwick was engaged in the transaction at all, it was merely acting as their agent.

Petitioner emphasizes principally three circumstances to support his view. First, Lodwick contemplated the possibility it might liquidate prior to consummation of the transaction at the time it entered into an executory contract of sale with Kraft. Next, Lodwick transferred the Bossier Parish tract to its shareholders in liquidation prior to completion of the sale. Finally, the former shareholders signed the instrument which">*25 conveyed the timber and granted the leasehold to Kraft, and Kraft made payment of the purchase price to them.

Despite these facts, we are convinced that the sale must be attributed to Lodwick under the principles stated in 324 U.S. 331">Commissioner v. Court Holding Co., supra. That case stated that the tax consequences arising from gains from a sale of property are not finally to be determined solely by the means employed to transfer legal title, and that a sale by one person can not be converted for tax purposes into a sale by another by using the latter as a conduit through which to pass title.

Examining each step as an integral part in the whole transaction, the evidence points irresistably to the conclusion that the function performed by the shareholders in conveying the property to Kraft was to discharge Lodwick's contract obligation. We note, first, that all negotiations with Kraft from October 1940 until final consummation of the sale on January 21, 1941, were carried on exclusively by Lodwick through its attorneys. At no stage did either party cease negotiations. Nor is there evidence that either prior to or following Lodwick's liquidation on December">*26 27, 1940, its shareholders ever tried to reach an independent agreement with Kraft for the sale of interests in the Bossier Parish tract.

It is significant that Lodwick entered into a binding executory contract for the sale of timber and lease of land to Kraft on October 31, 1940, while at still held title to the Bossier Parish land and before any action was taken by the stockholders authorizing liquidation. The terms of the sale were set forth clearly and definitely in the contract of October 31, 1940, and final consummation of the sale was conditioned only upon the approval of title by the vendee. It is true the contracting parties anticipated the possibility that Lodwick might be liquidated before title was approved and conveyance could be made, but the contract expressly provided that in the event of this contingency ">*1067 any transferees of the Bossier Parish land, including the shareholders of Lodwick, would take it subject to this contract of sale. The effect of this provision was to bind the stockholders to carry out the conveyance to Kraft as the company's agents, should liquidation occur prior to completion of the sale. This clause completely negates the contention">*27 of petitioner that due to impending liquidation Lodwick entered into this contract on behalf of its shareholders.

When Wurtsbaugh, as liquidator of Lodwick, conveyed the Bossier Parish tract to the shareholders on December 13, 1940, Lodwick's executory contract of sale with Kraft was specifically made a part of the conveyance and the former stockholders expressly bound themselves to perform the obligations of Lodwick set forth therein. Furthermore, the terms of the instrument conveying the timber and leasing the land on the Bossier Parish tract to Kraft which the former shareholders executed on January 21, 1941, were similar in every major respect to those set forth in the contract of October 31, 1940.

In view of all these circumstances, we conclude that, in completing the sale to Kraft, the former shareholders were merely agents of Lodwick, carrying into effect an agreement entered into by Lodwick prior to liquidation, rather than principals, executing the terms of a contract made on their behalf by the company. Thus we hold that the sale to Kraft was made by Lodwick and that income arising therefrom accrued to it in the calendar year 1941.

Petitioner contends that, if it is determined">*28 that Lodwick realized income in 1941 from the sale to Kraft, then Lodwick was entitled to deduct therefrom various expenses arising in connection with the Bossier Parish tract in completing the sale to Kraft and in preparing Lodwick's income tax return for 1940, all of which were incurred in 1941 and paid by the partnership of former stockholders of Lodwick. Respondent, on brief, has not questioned expenses of $ 30 for title and abstract work, $ 165 for revenue stamps, and $ 17.50 for cancellation fees, all of which were incurred incident to the sale on January 21, 1941. Since it does not appear that such expenses entered into respondent's computation of income arising from the sale, we hold they should be excluded as costs of sale from the $ 92,692.27 which respondent determined Lodwick realized as gross income on the transaction. We thus hold, and have found as a fact, that income of $ 92,479.77 accrued to Lodwick in 1941 from the sale to Kraft. The deductibility of $ 4,350 interest paid on purchase money notes of the Bossier Parish tract, $ 372.25 paid attorneys for handling the sale to Kraft, and $ 250 paid for tax and accounting service fees in the preparation of Lodwick's">*29 income tax return for 1940 is not contested. Therefore we hold Lodwick was entitled to deduct these expenses in determining its net income for the year 1941. Respondent objects to a claimed deduction ">*1068 of $ 2,518.09 for 1940 realty taxes on the Bossier Parish land paid on December 31, 1940. Since Lodwick was on an accrual basis of reporting income, we hold this 1940 liability may not be deducted in the subsequent year.

Petitioner next denies that Lodwick was liable for any declared value excess profits tax for the year 1941. He bases his contention, first, on the premise that Lodwick was not "carrying on or doing business" for any part of the year ended June 30, 1941, within the meaning of section 1200 (a) of the Internal Revenue Code, ¹">*30 imposing the capital stock tax. By the terms of section 600 of the code, ² liability of a corporation for the declared value excess profits tax in 1941 depended upon it being taxable under section 1200 for the year ended June 30, 1941.

It has often been held that where a corporation was organized for profit and is doing what it was organized to do in order to realize a profit, no special volume of business is necessary to make it liable for the capital stock tax and a very slight activity may be deemed sufficient to constitute "doing business." Section Seven Corporation v. Anglin, 136 Fed. (2d) 155, 158.

Applying this principle to the facts of the instant case, we are convinced">*31 that Lodwick was "doing business" in the year ended June 30, 1941. Lodwick was organized for profit. For at least part of the year ended June 30, 1941, it also was carrying on one of the business activities for which it was organized in order to realize a profit. We have found as a fact that from October 1940 until January 21, 1941, Lodwick through its attorneys was negotiating continuously for the sale of timber and lease of land to Kraft and that it finally completed the transaction on the latter date through its stockholders. By this transaction Lodwick carried out its corporate purpose to sell timber and timber land. Such activity negates petitioner's argument that Lodwick was merely holding its properties pending liquidation at this time. We therefore hold that Lodwick was subject to capital stock tax under section 1200 for the year ended June 30, 1941.

Petitioner next contends that Lodwick was not liable for any declared value excess profits tax in 1941 because it claims to have filed ">*1069 a capital stock tax return for the year ended June 30, 1941, of sufficient declared value to eliminate the tax. He refers to a 1941 capital stock tax return tendered for filing">*32 by the former stockholders of Lodwick on behalf of the company on July 18, 1947, in which a new declared value for the capital stock was stated in the amount of $ 950,000. In support of the validity of this return, petitioner argues that the 1941 capital stock tax return in the name of Lodwick filed by J. T. Wurtsbaugh, as president, and L. M. Moffitt, as secretary-treasurer, on September 29, 1941, was null and void, due to the incapacity of either of these men to represent Lodwick following the issuance of its certificate of final dissolution on May 27, 1941. He contends that respondent had no right to reject the second purported return for 1941 and rely on the first purported return for that year in computing Lodwick's declared value excess profits tax liability for 1941.

We agree that the purported capital stock tax return filed September 29, 1941, was a nullity for the reason that it was not filed within one month after June 30, 1941, and it does not appear that any extension of time for such filing was requested or granted.

In determining the tax liability herein, respondent used as the declared value of Lodwick's capital stock the amount of $ 245,665.37 which Lodwick had declared">*33 in its capital stock tax return for the year ended June 30, 1940. No reliance was placed upon the first purported capital stock tax return for 1941, which stated the value of the capital stock to be zero.

Furthermore, we are convinced that the purported capital stock tax return tendered in the name of Lodwick on July 18, 1947, was of no validity and respondent properly disregarded it in computing Lodwick's declared value excess profits tax liability for 1941. Section 1203 of the code, as amended, ³ governed the filing of capital stock tax returns for the year ended June 30, 1941. It provides that returns must be filed within one month after the close of the year with respect to which the tax is imposed, but permits the Commissioner to extend the time for making returns. Such extension, however, was expressly limited to 90 days with respect to the year ended June 30, 1941. Moreover, it does not appear that any extension in the time for filing ">*1070 was requested or granted. In view of the mandatory language of section 1203, the purported 1941 capital stock tax return tendered for filing on July 18, 1947, was not timely presented and unquestionably would have had no validity">*34 even if it had been accepted for filing and filed.

Petitioner points to Del Mar Addition v. Commissioner, 113 Fed. (2d) 410; Wabash Oil & Gas Association, 6 T.C. 542; Jordan Creek Placers, 43 B. T. A. 131;">*35 and Huron River Syndicate, 44 B. T. A. 859, as authority for the right of the former stockholders to file a capital stock tax return on behalf of Lodwick as late as July 18, 1947. As to the taxpayers in those cases, it was held the delinquency in filing was not fatal, but involved only the delinquency penalty. But those decisions are of no aid to petitioner, for in them the taxpayer was an organization whose character as a statutory corporation was being litigated and whose duty therefore to file a capital stock tax return was not clear. They furnish no support for permitting a new capital stock valuation made in a delinquent return to have the same effect as though embodied in a punctual return. See Westland Theatres, Inc., 46 B. T. A. 82, and Venetian Shortway, Inc., 4 T.C. 244. The case of Ardbern v. Commissioner, 120 Fed. (2d) 424, cited by petitioner, does not involve capital stock tax returns and is clearly inapplicable.

Therefore, we hold that Lodwick did not escape liability for a declared value excess profits tax in 1941 by virtue of the capital">*36 stock tax return tendered for filing by the former stockholders.

Petitioner contends that, even if it should be held that Lodwick was liable for deficiencies in income tax and declared value excess profits tax for 1941, it was not liable under section 291 (a) of the code for penalties determined by respondent for failure to file an income tax and declared value excess profits tax return for 1941, because such failure was due to reasonable cause and not to willful neglect. On this issue we support petitioner. For the reasons which we think are apparent from the record as hereinabove indicated, we are convinced that the failure to file such returns was due to reasonable cause and not to willful neglect.

Petitioner finally contends that, even though we determine that Lodwick was liable for income and declared value excess profits taxes in 1941, yet he is not liable for their payment as a transferee of assets of Lodwick. He first invokes the doctrine of res judicata to support this contention. He argues that our earlier decision in J. T. Wurtsbaugh, 8 T.C. 183, decided once and for all that he was not liable as a transferee for any possible tax ">*37 deficiencies of Lodwick regardless of the year, thereby estopping respondent forever from determining any liability against him on this basis. He bases this conclusion on the premise that respondent had only one cause of action against him ">*1071 as transferee for any tax deficiencies of Lodwick and it was incumbent upon respondent to assert his entire claim in the earlier proceeding. To permit respondent first to contend that he was liable as a transferee for tax deficiencies of Lodwick in 1940, and when defeated on that question, then to determine he was liable for tax deficiencies of Lodwick in 1941, would be to allow respondent to split his cause of action against him as a transferee, in the view of petitioner.

We must reject this contention of petitioner, for it is based upon a misconception of transferee liability. As a result of receiving assets of Lodwick on dissolution, petitioner stood in the shoes of the dissolved corporation and was liable as transferee for payment of Lodwick's incurred tax liability for 1941 to the extent of the value of such assets. Income and declared value excess profits taxes are levied on an annual basis and each year marks the origin of a">*38 new and separate liability. In J. T. Wurtsbaugh, supra, we merely determined that respondent had no enforceable claim against Lodwick for taxes in 1940 and, therefore, petitioner was not liable as a transferee in respect to taxes against Lodwick for that year. Our decision in no way determined the liability of Lodwick for taxes in 1941 and in turn the liability of petitioner, as transferee, to pay them. Thus respondent was not estopped by res judicata from later asserting liability against petitioner on this basis. See Commissioner v. Sunnen, 333 U.S. 591">333 U.S. 591.

Petitioner's second ground for arguing he should not be held liable as transferee for tax deficiencies of Lodwick for 1941 is based on the doctrine of estoppel by election. He states that, when respondent taxed both him and his wife on capital gains they realized in 1940 from assets received from Lodwick in that year without any reduction in their value on account of tax deficiencies of Lodwick for 1941, a binding election was made by respondent whereby petitioner was released from liability as transferee, and that respondent could not thereafter hold petitioner">*39 liable as a transferee on the ground that those assets were charged with a trust to satisfy the corporation's tax deficiencies for 1941. He cites in support of his argument United States v. Brown, 86 Fed. (2d) 798, and Vestal v. Commissioner, 152 Fed. (2d) 132. The cases cited are readily distinguishable on their facts.

We fail to see any such inconsistency in respondent's position as above claimed which would prevent him from asserting transferee liability against petitioner for tax deficiencies of Lodwick for 1941. In 1940, when petitioner received assets of Lodwick in liquidation, Lodwick had not incurred the tax liability for 1941 in respect of which petitioner is here charged with liability as transferee. Hence, there was no basis for the claimed election and respondent is not forestalled ">*1072 from asserting that the assets in the hands of petitioner were impressed with a trust to pay tax liabilities of Lodwick incurred in 1941.

It is true it would be inequitable for respondent both to retain the full amount of the capital gains tax determined against petitioner and his wife for 1940 and also hold ">*40 petitioner liable as a transferee for tax deficiencies of Lodwick in 1941 to the extent of the assets received on dissolution. Petitioner and his wife are entitled to a refund of the capital gains tax they paid in 1940 to the extent the 1941 tax deficiencies of Lodwick reduce the value of the distribution on liquidation. But petitioner and his wife are not without a remedy. They may still get relief through administrative action on their refund claim by the Commissioner, or, if he should disallow it, then by court action. Under section 3772 (a) (2) of the code, ⁴ a claim for refund is rejected only when the Commissioner has mailed by registered mail a notice of its disallowance. There is nothing in the evidence to show the Commissioner has taken such action. By virtue of the same section, petitioner and his wife have two years from the date of mailing of the Commissioner's disallowance to bring suit for refund, should the Commissioner disallow their claim.

">*41 We hold that petitioner was liable as a transferee, to the extent of assets he received on liquidation, for income and declared value excess profits tax liabilities of Lodwick for 1941, computed in accordance with our holdings and direction in this proceeding.

Decision will be entered under Rule 50.

---

Footnotes

• 1. SEC. 1200. TAX.

  (a) Domestic Corporations. -- For each year ending June 30, beginning with the year ending June 30, 1939, there shall be imposed upon every domestic corporation with respect to carrying on or doing business for any part of such year an excise tax of $ 1.25 for each $ 1,000 of the adjusted declared value of its capital stock.↩

• 2. SEC. 600. RATE OF TAX.

  If any corporation is taxable under section 1200 with respect to any year ending June 30, there shall be imposed upon its net income for the income-tax taxable year ending after the close of such year, a declared value excess-profits tax equal to the sum of the following:

  6-6/10 per centum of such portion of its net income for such income-tax taxable year as is in excess of 10 per centum and not in excess of 15 per centum of the adjusted declared value;

  13-2/10 per centum of such portion of its net income for such income-tax taxable year as is in excess of 15 per centum of the adjusted declared value.↩

• 3. SEC. 1203. RETURNS.

  (a) Requirement. -- Every corporation liable for tax under section 1200 shall make a return under oath. Such return shall contain such information and be made in such manner as the Commissioner with the approval of the Secretary may by regulations prescribe.

  (b) Time for Filing. --

  (1) General rule. -- Such return shall be made within one month after the close of the year with respect to which such tax is imposed.

  (2) Extension of time. -- The Commissioner may extend the time for making the returns, under such rules and regulations as he may prescribe with the approval of the Secretary, but no such extension shall be for more than sixty days. With respect to the year ended June 30, 1941, the extension may be for not more than 90 days.↩

• 4. SEC. 3772. SUITS FOR REFUND.

  (a) Limitations. --

  * * * *

  (2) Time. -- No such suit or proceeding shall be begun before the expiration of six months from the date of filing such claim unless the Commissioner renders a decision thereon within that time, nor after the expiration of two years from the date of mailing by registered mail by the Commissioner to the taxpayer of a notice of the disallowance of the part of the claim to which such suit or proceeding relates.↩