The controversy is one as to the liability of the executor and legatee of a shareholder in a dissolved corporation for a deficiency of income and profits taxes assessed against the company.
In September, 1919, the Van Sicklen Company, an Illinois corporation, sold all its assets to a Delaware corporation, the Van Sicklen Speedometer Company, and was thereupon dissolved. In consideration of the sale it received $250,000 in cash and 5,000 shares in the new company, which it distributed forthwith among its own shareholders. One of these shareholders was Charles H. Hulburd. His distributive portion on the dissolution of the company was $8,000 in cash and 160 shares of nopar stock. He died on January 14, 1924, leaving a will by which his son, De Forest Hulburd, and Hugh McBirney Johnston were appointed executors. The son, who is the petitioner in this court, was also a legatee and devisee. The coexecutor, Johnston, is dead.
In December, 1919, the Van Sicklen Company filed a corporation income and profits tax return for the fiscal year ending September 30, 1919. The return, however, was inadequate. Accordingly, on November 17, 1924, the Commissioner of Internal Revenue made an additional assessment in the sum of $227,872.06, with penalties in the sum of $113,936.03. Unable to collect this deficiency from the company after the distribution of its assets, he turned to the shareholders. On October 27, 1926, he mailed a letter to the 'Estate of Charles H. Hulburd, c/o De Forest Hulburd, 86 East Randolph Street, Chicago, Illinois.' In this he gave notice of a proposed assessment 'against the estate' by reason of its liability as transferee of the assets of the Illinois corporation. The amount of that liability was stated to be $24,000, but was afterwards reduced to $8,000, the cash received by the testator. In announcing this assessment, the Commissioner acted in reliance on section 280 of the Revenue Act of 1926 (26 U.S.C. App. § 1069, 26 USCA § 1069 and note); which permits an assessment against the transferee of a taxpayer upon the taxpayer's default. Before the passage of that act, shareholders who had received the assets of a dissolved corporation might be compelled to discharge unpaid corporate taxes, but only by bill in equity or action at law. Phillips v. Commissioner, 283 U.S. 589, 592, 593, 51 S.Ct. 608, 75 L.Ed. 1289. A summary procedure was added by the statute. Phillips v. Commissioner, supra. Upon the default of the taxpayer, the Commissioner is to apportion the deficiency among the transferees of the property and to give notice accordingly. Revenue Act 1926, § 274(a), 26 USCA § 1048. If the transferee is dissatisfied, he may petition the Board of Tax Appeals to redetermine the existence of liability and its proper distribution.
On October 27, 1926, when notice of the proposed assessment was sent to the petitioner, the estate of Charles H. Hulburd had been settled, the assets distributed, and the executors discharged. The discharged executors submitted to the Board of Tax Appeals a petition for review disclaiming liability. They stated in effect that they were the persons who had been appointed executors by the will of Charles H. Hulburd, but that their responsibilities as such were ended. Enumerating their objections to the assessment, they alleged that the action of the Commissioner was erroneous for the reason that the estate had been 'wholly distributed and settled and your petitioners duly discharged as executors thereof.' Thus, as early as December, 1926 (when the petition for review was filed), and before the period of limitation under the statute had run against a new assessment against legatees or devisees (Revenue Act 1926, § 280(b)(2), 26 USCA § 1069(b)(2), the Commissioner was put upon notice that the deficiency had been assessed against persons no longer liable and was given the opportunity to impose it upon others. Instead of doing this, he stood his ground and prayed for an order that his determination be confirmed.