Epstein
v.
Comm'r of Internal Revenue

Tax Court of the United States.Dec 21, 1951
17 T.C. 1034 (U.S.T.C. 1951)
17 T.C. 1034T.C.

Docket Nos. 29976 29977.

1951-12-21

HELEN EPSTEIN, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.MAX EPSTEIN, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

Philip W. Schneider, Esq., for the petitioners. William C. W. Haynes, Esq., for the respondent.


De facto Connecticut corporation held capable through its president of executing valid waivers in advance of expiration of statute of limitations so as to authorize respondent to send notices of liability to transferees within one year of expiration of statute as so extended. Philip W. Schneider, Esq., for the petitioners. William C. W. Haynes, Esq., for the respondent.

This proceeding arises out of respondent's determination of transferee liability in income, declared value excess-profits and excess profits tax for 1942 of $216, $144, and $1,440, respectively, by Helen Epstein, and of $54, $36, and $360, respectively, by Max Epstein. The single question is whether assessment and collection is barred by the statute of limitations which turns upon whether valid waivers were effectively executed on behalf of the transferor. Some of the facts were stipulated.

FINDINGS OF FACT.

The stipulated facts are hereby found accordingly.

The Mystic Cabinet Corporation hereinafter called the Corporation, filed its tax return for the fiscal year ended October 31, 1942, with the collector for the district of Connecticut. Petitioners are residents of New York, New York. Petitioner Helen Epstein is a transferee of assets of the Corporation in the amount of $1,800. Petitioner Max Epstein is a transferee of assets of the Corporation in the amount of $450.

On October 28, 1941, a certificate of incorporation for the Corporation was filed in the office of the Secretary of State for the State of Connecticut. The Corporation did not file a certificate of organization with the Secretary of State for the State of Connecticut within two years after the above date. In July 1943 the Corporation made a distribution of assets to its shareholders and thereafter it had no funds to do business. In 1946 the Corporation was not operating.

On October 31, 1942, Eli Dane was president and a director, and petitioner Max Epstein was treasurer of the Corporation. Dane did not usually take action in the name of the Corporation without consulting Epstein. Subsequently steps were taken by the collector of internal revenue with regard to the Corporation. Dane consulted his accountants, who were not accountants for petitioner. Thereafter he signed the waivers described below as president of the Corporation.

On January 11, 1946, less than three years from the filing of the Corporation's return for the fiscal year 1942, which Dane had also signed, the Corporation executed a consent extending the period in which an assessment of income and excess profits tax for that year might be made until June 30, 1947. This consent was signed by Dane as president of the Corporation, and the seal of the Corporation was affixed thereto.

On May 1, 1947, an instrument, purporting to be a consent, extending the period in which an assessment of income and excess profits tax for the fiscal year 1942 might be made until June 30, 1948, was executed by the Corporation. This instrument was signed by Dane as president, and the seal of the Corporation was affixed thereto.

So stipulated.

On April 29, 1948, an instrument, purporting to be a consent, extending the period in which an assessment of income and excess profits tax for the fiscal year 1942 might be made until June 30, 1949, was executed by the Corporation. 1 This instrument was signed by Dane as president, and the seal of the Corporation was affixed thereto.

On May 19, 1950, respondent sent notices of liability to petitioners determining that they were transferees and that the Corporation owed deficiencies in income, declared value excess-profits, and excess profits tax of $782.38, $534.56, and $5,123.64, respectively.

The waivers of May 1, 1947, and April 29, 1948, were executed by the Corporation, and the period of limitation for assessment of transferee liability of petitioners had not expired on May 19, 1950.

OPINION.

OPPER, Judge:

If the statute of limitations expired as to petitioners' transferor less than a year prior to the determination of liability against petitioners, the notice was timely and petitioners are concededly liable as transferees. Section 311(b), Internal Revenue Code. The answer to this question depends in turn upon whether two waivers executed ostensibly on behalf of the corporate transferor were valid. The three years constituting the original statutory period of limitation had not expired on January 11, 1946. A waiver executed on behalf of the Corporation by its president on that date extending the statute until June 30, 1947, is conceded by petitioners to have been valid. Similar waivers similarly executed for periods ending in 1948 and 1949 are the nub of the controversy.

Whether the corporate existence continued over this period for purposes of validating the action and whether the act of executing the waiver was intra vires the executing officer are questions to be determined under the local law of the State of Connecticut. United States v. Krueger (C.A. 3), 121 F.2d 842, certiorari denied 314 U.S. 677.

That a Connecticut corporation remains in existence for the purpose of winding up and settling its affairs admits of little doubt. New York, Bridgeport & Eastern Railway Co. v. Motil, 81 Conn. 466, 71 A. 563. That is so, notwithstanding that the original organization of the transferor corporation was abortive for failure to file the qualifying certificate. It became and remained a de facto corporation, Di Francesco V. Kennedy, 114 Conn. 681, 160 A. 72; Tiernan v. Savin Rock Realty Co., 115 Conn. 473, 162 A. 11; In re Halsey W. Kelley & Co. (D. Conn.), 215 F. 155, and ‘whether they expire by their own limitation or are dissolved by voluntary action‘ was authorized to ‘continue so far as may be necessary to enable them to prosecute and defend suits by or against them, to close up their affairs, dispose of their property, and distribute their assets.‘ Connecticut General Statutes (1930), section 3373.

Under the circumstances, the signature of the president and the presence of the corporate seal must also be taken as prima facie valid. See Commissioner v. Angier Corp. (C.A. 1), 50 F.2d 887; Carey Mgf. Co. v. Dean (C.A. 6), 58 F.2d 737. The signature was that of the man who had signed as president the admittedly valid waiver and had also executed the Federal income tax returns on behalf of the corporation which apparently gave rise to the tax liability. He ‘being the officer who signed the income tax returns and the officer whom the corporation held out to the Government as the person entitled to represent it in such matters by signing the waiver * * * acted within the apparent scope of his authority and the Government had a right to rely and act upon such waiver.‘ Hammond v. Carthage Sulphite Pulp & Paper Co. (N.D., N.Y.), 34 F.2d 155. See also Continental Oil Co. v. United States (Ct. Cls.), 14 F. Supp. 533.

This was not, as contended by petitioners, the abandonment of ‘a defense which might have been interposed to * * * collection.‘ South Penn Oil Co., 20 B.T.A. 1180, revd. (C.A.D.C.) 68 F.2d 420. The first waiver validly extended the statute to a date later than the time of execution of the second waiver and the second similarly kept the period open until after execution of the third. There was no time when a waiver was executed subsequent to the expiration of the extended statutory period, so that it cannot be said that a valid defense ever existed. Under these circumstances, the authority of a duly constituted corporate officer is not to be questioned, whether or not he is acting also as liquidating trustee. Commissioner v. Godfrey (C.A. 2), 50 F.2d 79; see Galdi v. Jones (C.A. 2), 141 F.2d 984.

SEC. 276. * * *(b) WAIVER.— Where before the expiration of the time prescribed in section 275 for the assessment of the tax, both the Commissioner and the taxpayer have consented in writing to its assessment after such time, the tax may be assessed at any time prior to the expiration of the period agreed upon. The period so agreed upon may be extended by subsequent agreements in writing made before the expiration of the period previously agreed upon.

The cases upon which petitioners rely can all be distinguished either as dealing with waivers signed after the expiration of the statute of limitations, South Penn Oil Co., supra; Hammond v. Carthage Sulphite Pulp & Paper Co., supra; or as applying the law of other jurisdictions where the corporate existence terminates completely leaving no subsequent leeway for the winding up of the corporate affairs, Union Shipbuilding Co., 43 B.T.A. 1143; D. J. Gay, 31 B.T.A. 580; In re Booth Drug Store (W.D. Va.), 19 F. Supp. 95; Sharp v. Eagle Lake Lumber Co., 60 Calif. App. 386, 212 P. 933See People v. Montecito Water Co., 97 Calif. 276, 32 P. 236; or in one or two instances as cases where the execution was by a stranger holding no office in the corporation on whose behalf he purported to act. Bamberg Cotton Mills Co., 8 B.T.A. 1236; Carnation Milk Products Co., 15 B.T.A.556.

The waivers having in our view been validly executed postponed the running of the statute until such a date that the liabilities determined against these petitioners were timely. There being no other resistance to their transferee liability,

Decisions will be entered for the respondent.