Opinion
Docket No. 18393.
1950-12-29
FALLS CITY PONTIAC COMPANY, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.
Frederic D. Dassori, Esq., Dee R. Bramwell, Esq., and M. H. Cochran, C.P.A., for the petitioner. George L. LeBlanc, Esq., for the respondent.
Where dissolution of a corporation has been voted by the stockholders and in the resolution of dissolution the president of the corporation was designated ‘as trustee to conduct the winding up of the business and affairs of the corporation‘ the Tax Court is without jurisdiction in a proceeding initiated by a petition, not by the designated trustee, but, by an individual who was a stockholder and at the time of dissolution had been a director. Frederic D. Dassori, Esq., Dee R. Bramwell, Esq., and M. H. Cochran, C.P.A., for the petitioner. George L. LeBlanc, Esq., for the respondent.
This case is before the Court on respondent's motion to dismiss for lack of jurisdiction, the question being whether the petition herein is the petition of the taxpayer, the relief claim of which was denied by respondent.
FINDINGS OF FACT.
Falls City Pontiac Company was organized on March 3, 1936, under the laws of Delaware and its principal place of business in Louisville, Kentucky. It filed its 1941 income and excess profits tax returns with the collector of internal revenue at Louisville. On September 13, 1943, it field with the respondent an application for relief from excess profits tax for 1941 under the provisions of section 722 of the Internal Revenue Code and for the refund or credit of $9,007.56 of such tax for that year.
A special meeting of the stockholders of the company was held on November 4, 1943, at which were present all the stockholders consisting of James L. Paddock, president of the company, owning 153 shares, L. F. Paddock, 120 shares, and Elaine K. Paddock, wife of James L. Paddock, 27 shares. The minutes of that meeting contain the following:
The Chairman of the Meeting stated that it was the desire of the stockholders of the company, that the corporation be dissolved and its assets, subject to its liabilities, be distributed to the stockholders immediately, in exchange for the surrender of the stock and that all the necessary steps be taken so that the final liquidation and winding up of the corporate affairs be accomplished by November 30th, 1943.
Upon motion duly made, seconded and unanimously carried, it was
RESOLVED: That the business and affairs of Falls City Pontiac Co., a Delaware corporation, be wound up out of court, the corporation dissolved and that the President of the Company is hereby designated as trustee to conduct the winding up of the business and affairs of the corporation.
Thereafter on the same day a special meeting of the company's board of directors, consisting of the above-named three persons, was held. The minutes of the meeting disclose the following:
Upon motion duly made, seconded and unanimously carried, it was
RESOLVED: That in lieu of a liquidating dividend, the corporation transfer and convey to the stockholders as of November 30th, 1943, this corporation's entire assets, subject to its entire liabilities, upon the surrender to this corporation of all the corporation's issued and outstanding shares of capital stock, and that the same is hereby authorized, and it was further
RESOLVED: That the President and Secretary of this company be, and they are hereby authorized and directed to take such steps as may be necessary to execute any and all instruments required in effecting the transfer of the corporation's assets, subject to its liabilities, as of November 30th, 1943 to the stockholders.
James L. Paddock thereupon delivered to the Secretary of the Meeting properly endorsed stock certificates representing 300 shares of this corporation's issued and outstanding stock being all the issued and outstanding stock of the corporation, for surrender and cancellation in accordance with the foregoing resolutions.
On December 1, 1943, the company, by James L. Paddock, as president, and he, L. F. Paddock and Elaine K. Paddock, as stockholders, entered into an agreement which provided as follows:
WHEREAS the Stockholders are the owners of all the issued and outstanding capital stock of the corporation, and
WHEREAS the dissolution of the Corporation has been duly authorized and
WHEREAS it has been agreed between the parties that in lieu of any liquidating dividend otherwise payable to the Stockholders in retirement of the Corporation's entire issued and outstanding stock the Corporation will transfer to the Stockholders all of its assets, subject to its entire liabilities.
NOW, THEREFORE, in consideration of the premises and the mutual covenants herein contained, it is agreed as follows:
1. The Corporation has granted, assigned, conveyed and set over unto the Stockholders all monies, bills, notes, contracts, agreements, books of account, merchandise, stock in trade, machinery, office furniture, leaseholds and all other properties and effects of every nature and description owned by or used by the Corporation as of midnight, November 30th, 1943.
2. The Stockholders have, as of midnight November 30, 1943, assumed the Corporation's entire liabilities of every nature and character including any and all undisclosed liabilities which may in the future be discovered.
3. The Corporation hereby authorizes the Stockholders to collect all outstanding monies, bills, notes, negotiable instruments, accounts and other properties hereby transferred to it and in the Corporation's name to give receipts therefor and to endorse checks made to the Corporation in payment and otherwise to secure unto the Stockholders full possession of said properties.
4. The Corporation hereby acknowledges receipt from the stockholders of properly endorsed certificates representing 300 shares of the Corporation's outstanding Class B stock, being all the issued and outstanding capital stock of said corporation.
On December 18, 1943, the company filed with the respondent a report of its dissolution on Form 966, to which was attached a copy of the minutes of the special meeting of the stockholders held on November 4, 1943.
The respondent on February 12, 1943, sent by registered mail, a letter addressed to the company at the address shown in the application for relief and also in the report of dissolution. In this letter the respondent stated that the determination of the company's excess profits tax for 1941 disclosed an excess profits tax liability of $9,059.30, as shown in a statement mailed to the company on February 21, 1946; that it had been determined that the company had not established its right to the relief requested in its application for relief under section 722 of the Internal Revenue Code filed September 13, 1943; that in accordance with the provisions of section 732 of the Code, notice was thereby given of the disallowance of the claim for refund asserted in the application for relief under section 722 and in related claims (Form 843) filed February 20, 1946, and December 23, 1946; and that within ninety days from that date the company might file a petition with the Tax Court for redetermination of its excess profits tax liability under the Internal Revenue Code.
A petition styled as set out at the beginning of this report was filed with the Tax Court on May 11, 1948. In it it was stated that the company was petitioning for a redetermination of its 1941 excess profits tax as determined by respondent in his notice of disallowance dated February 12, 1948. It was also stated that the company ‘is a corporation organized under the laws of the State of Kentucky,‘ that the taxes in controversy were 1941 excess profits taxes in the amount of $9,059.30 and that the respondent's determination of the tax set forth in the notice of disallowance was erroneous because it was based on his erroneous determination that the company's application for relief under section 722 of the Code did not meet the requirements of each of the subsections of 722. The petition was signed by Frederic D. Dassori and M. H. Cochran as counsel and was verified by Elaine K. Paddock. In the verification Mrs. Paddock stated that ‘she was the Director of Falls City Pontiac Company, the Petitioner above named‘ and ‘that she is the trustee in liquidation of petitioner and has authority to act for petitioner in this matter.‘ On June 11, 1948, the respondent filed an answer joining issue on the error assigned in the petition.
On April 8, 1949, the respondent filed a motion to dismiss the proceeding for lack of jurisdiction. The grounds stated by the motion for dismissal are (1) that the company is a dissolved Delaware corporation and that the period allowed by Delaware law to dissolved corporations for the purpose of prosecuting and defending suits by or against them had expired prior to the time of the filing of the petition herein, and (2) that the petition failed to establish that Mrs. Paddock had authority to execute it on behalf of the company.
OPINION.
TURNER, Judge:
It is the claim of counsel for the petitioner that under section 42 of Chapter 65 of the Revised Code of Delaware
the corporation was in existence at the time the petition herein was filed and that the petition filed is that of the corporation. In the alternative, it is argued that even though Mrs. Paddock was without authority to act for the corporation in filing the petition, she was nevertheless a transferee of the corporation and as such transferee had the right under the statute to file the petition herein. It is the contention of the respondent that the corporation under Delaware law was no longer in existence at the time the petition was filed and for that reason could not file the petition herein, and further that Mrs. Paddock was without power or authority to file the petition herein in behalf of a nonexisting corporation. There is no claim that the existence of the corporation was continued by reason of the appointment of a receiver or appointment of the directors as trustees for the corporation by the court of chancery pursuant to section 43 of the Delaware Code.
SEC. 42. Continuation of Corporation After Dissolution For Purposes of Suit, Etc.:— All corporations, whether they expire by their own limitation, or are otherwise dissolved, shall nevertheless be continued for the term of three years from such expiration or dissolution bodies corporate for the purpose of prosecuting and defending suits by or against them, and of enabling them gradually to settle and close their business, to dispose of and convey their property, and to divide their capital stock but not for the purpose of continuing the business for which said corporation shall have been established; provided, however, that with respect to any action, suit or proceeding begun or commenced by or against the corporation prior to such expiration or dissolution and with respect to any action, suit or proceeding begun or commenced by the corporation within three years after the date of such expiration or dissolution, such corporation shall only for the purpose of such actions, suits or proceedings so begun or commenced be continued bodies corporate beyond said three-year period and until any judgment, orders, or decrees therein shall be fully executed.
The argument of the petitioner as to the continued existence of the corporation is based on the proposition that the filing of the claim for relief under section 722 of the Internal Revenue Code on September 13, 1943, was the beginning or commencing by the corporation of a suit or proceeding within the meaning of section 42 of Chapter 65 of the Delaware Code and that by reason of the provisions of that section the corporation is continued in existence until any judgment, orders or decrees pursuant to such suit or proceeding shall be fully executed.
Among the cases relied upon by petitioner is that of Bahen & Wright, Inc. v. Commissioner, 176 Fed.(2d) 538, wherein it was held that the mailing of a statutory notice of deficiency by the Commissioner of Internal Revenue within 3 years after dissolution of a corporation was the beginning of a suit or proceeding under section 42, supra, of the Delaware Code, even though no petition was filed with this court until after the expiration of such 3-year period. On that point, it is the contention of the respondent, first, that Bahen & Wright, Inc. v. Commissioner, is not good law, and second, that in any event it is distinguishable on the facts that the mailing of statutory notice of deficiency in that case is comparable here to the mailing by the Commissioner of the statutory notice of rejection of the petitioner's claim, and since such notice was not sent until after the expiration of the 3-year period, no suit or proceeding was commenced under Delaware law within the required 3-year period.
Regardless of the soundness of the arguments of counsel for the petitioner, that a suit or proceeding was instituted by the filing of the claim for relief in 1943, thereby continuing the life of the corporation, or the soundness of the respondent's argument that no suit or proceeding within the meaning of the Delaware statute was commenced within the 3-year period after dissolution of the corporation, it is our view that on the facts here the proceeding must be dismissed for lack of jurisdiction. As a part of the resolution or dissolution the stockholders specifically designated the president as ‘trustee to conduct the winding up of the business and affairs of the corporation.‘ No power or authority to act for the corporation in winding up its affairs was left in the directors. Counsel for the petitioner concedes that Mrs. Paddock had no authority to act as trustee, but contends that the petition here is the petition of the corporation because Mrs. Paddock was a director and as a stockholder was a transferee of its assets. The resolution of the stockholders of the corporation voting dissolution is plan and unambiguous and no argument or authority has been advanced to the effect that the stockholders did not have the power to place the affairs of the corporation in the hands of the president as trustee nor that such action when taken was not effective. We accordingly conclude that Mrs. Paddock had no power or authority as a director to file a petition for the corporation. Similarly she had no such power or authority as a stockholder and transferee of the corporation. Congress has given us no jurisdiction to hear and determine the rights and liabilities of a taxpayer under a petition filed by someone without authority so to do. By entry of a proper order the proceeding herein will be dismissed for lack of jurisdiction.