89 So. 2d 174 | Ala. | 1956
The question on this appeal is whether appellant, who will be referred to as the taxpayer, is entitled to a deduction from his taxable income for 1951 for State income tax purposes, of an item designated on his return as "Federal Income Taxes on Gimon Estates — a dissolved corporation, $17,450.49", and an item of $3819.10 designated as "Interest Paid — Collector *682 of Internal Revenue" (computed on said item of $17,450.49).
The factual situation is disclosed by the "Stipulation of Facts" contained in the transcript, as follows:
"1. Appellant is an individual, residing in the City of Birmingham, Jefferson County, Alabama.
"2. The State of Alabama, appellee, by and through the State Department of Revenue, J. A. Stephens, Assistant Commissioner of Revenue, has heretofore on October 9, 1953 made a tentative assessment of income tax for the calendar year 1951 in favor of the State of Alabama against appellant of which the appellant had due notice and to which assessment written protest was duly filed by appellant. Appellant filed his return with said Department of Revenue of Alabama on a cash receipts and disbursement basis in 1951 and prior years.
"3. Thereafter on November 30, 1953 said assessment of income tax against appellant was made final for the said calendar year1951 as follows:
Income tax.......................................... $3,141.10 Interest on said tax from the date the same became due to the date of the assessment 101.00 Additional interest from 10-9-53 to date............ 9.13 Total amount assessed............................... 3,251.23 Tax previously paid................................. 2,066.60 --------- Balance of tax and interest due as of this date ............................................ 1,184.63.
"4. Thereafter and on December 28, 1953 appellant filed notice of appeal from said final assessment with the Secretary of the Department of Revenue and with the register of this court. Appellant also executed and filed in this court a supersedeas bond, all as provided by law, and more particularly the provisions of Title 51, Section 140, Code of Alabama 1940.
"5. During the month of December, 1951, appellant, as transferee of the assets of the Gimon Estates, Inc., a dissolved corporation, paid to the Collector of Internal Revenue, Birmingham, Alabama, the sum of $17,450.49, federal income taxes, and $3,839.10 as interest on said tax. These payments were made as a result of the determination by John B. Dunlap, as Commissioner of Internal Revenue, dated November 30, 1951 wherein appellant was advised that the determination of income tax liability of Gimon Estates, Inc., Birmingham, Alabama for the taxable period January 1, 1948 to January 10, 1948 disclosed a deficiency in federal income tax of $41,548.77. Gimon Estates, Inc., an Alabama corporation, was finally dissolved on January 10, 1948, and its net assets after liabilities, were distributed as liquidating dividends to each of the stockholders of said corporation in the proportion that the number of the shares of stock owned by each share-holder bore to the whole number of shares of stock issued by said corporation and outstanding at that time.
"6. The sum of $17,450.49 was determined to be his prorata amount of the federal income tax, which was assessed by the Federal Government against the said dissolved corporation, and an assessment in this amount was made against appellant under section 311 of Internal Revenue Code of 1939 (Title 26 United States Code), 'as transferee of assets of Gimon Estates, Incorporated, Birmingham, Alabama,' the Gimon Estates, Inc., having been dissolved and all its assets transferred to its stockholders. This amount, together with statutory interest in the amount of $3,839.10 was paid by appellant to the Collector of Internal Revenue at Birmingham, Alabama, in December, 1951, and receipt was issued by the said collector to appellant acknowledging payment of said federal income tax and interest by appellant, as transferee aforesaid. Said federal income taxes were not paid on net income earned by appellant during the calendar year 1951, but were paid as the result of the assessment in December, 1951, as aforesaid, made against appellant, as transferee of the assets of Gimon Estates, Inc. These amounts were claimed by appellant as deductions from his income in his 1951 report to the Department of *683 Revenue of the State of Alabama, but said department declined to allow said claimed deductions and disallowed the same. Appellant's liquidating dividends greatly exceeded said federal taxes and interest.
"7. In the event it is determined that the said federal income tax and interest as paid in December, 1951 weredeductible in computing appellant's 1951 income taxes due under the Alabama Income Tax Law to the State of Alabama there would be no deficiency in tax or interest owing by appellant to the State of Alabama for the calendar year 1951, and the final assessment appealed from should be set aside in full. In the event such taxes and interest are held not so deductible, the final assessment of income tax appealed from should be confirmed and judgment should be entered against appellant in favor of the State of Alabama in the amount of $1,184.63, together with interest on $1,064.50 at the rate of 6% per annum from November 30, 1953 to the date of payment. If the court should rule otherwise than as aforesaid, the parties agree to furnish to the court a computation of any tax which may be due under the court's ruling, by stipulation."
It is insisted by appellant that he was entitled to the deduction under section 385, as amended, Title 51, Code of Alabama (see, Pocket Part Code, section 385(4), which allows a deduction from income of a taxpayer "the amount of federal income tax paid * * * within the taxable year," imposed by authority of the United States. Appellant claims that as transferee of assets of the dissolved corporation if Gimon Estates, Inc., which assets were subject to the lien of the United States for a deficiency income tax for a period in 1948, he became personally liable for at least his pro rata part of the income tax deficiency of Gimon Estates, Inc., by virtue of section 311(a)(1), Title 26 U.S.C.A. of 1939 as amended. His pro rata share of said tax was assessed to him by the commissioner of internal revenue in the amount of the two items referred to above, and he paid the same in 1951. That all of this was a federal tax imposed by authority of the United States, and was therefore deductible. Section 311(a)(1), supra, is as follows:
"(a) Method of collection. The amounts of the following liabilities shall, except as hereinafter in this section provided, be assessed, collected, and paid in the same manner and subject to the same provisions and limitations as in the case of a deficiency in a tax imposed by this chapter (including the provisions in case of delinquency in payment after notice and demand, the provisions authorizing distraint and proceedings in court for collection, and the provisions prohibiting claims and suits for refunds):
"(1) Transferees. The liability, at law or in equity, of a transferee of property of a taxpayer, in respect of the tax (including interest, additional amounts, and additions to the tax provided by law) imposed upon the taxpayer by this chapter".
The State contends that the assessment to appellant was not as a taxpayer, but a summary procedure to collect a tax chargeable as such to Gimon Estates, Inc.; and that although he became subject to the lien of the United States in the amount of the tax, it was not his duty to pay it as a taxpayer but he became liable to account by having become transferee of property which was subject to a lien held by the United States as security for a debt primarily owing by another.
The trial court approved the view advanced by the State Department of Revenue in this respect, accepted the reassessment made by the state department without a deduction of those items, and rendered judgment affirming it. The taxpayer has appealed, contending that the amount he paid with interest is for a tax imposed on him by authority of the United States. We do not find where this Court has defined the term as there used. *684
We think the claimed deduction is only allowable when the amount paid is for taxes imposed on the person paying it, who is the taxpayer on whom the tax as such is primarily laid by the United States. Section 311(a)(1), Title 26, supra, does not lay a tax on this taxpayer on account of any event which justifies a tax levy against him. It recognizes a liability for the amount of a tax laid on another in respect to an event for which the other is subject to the tax, to wit, the receipt of income. This taxpayer is not thereby subject to pay the amountas a tax laid on him but to account as the transferee of property which is subject to a lien held by the United States, and which is chargeable as a tax against another. The procedure under section 311, supra, has been held to be one for the speedy collection of the primary debt. Nunan v. Green, 8 Cir.,
In Phillips-Jones Corp. v. Parmley (both appeals), supra, the United States Supreme Court held that when corporate assets are distributed to stockholders upon dissolution of the corporation which was indebted to the United States on a deficiency assessment against the corporation, the stockholders may be compelled in equity to discharge such deficiency irrespective of section 311(a)(1), Title 26 (1939), supra (section 280[a][1], 44 Stat. 61), but that said statute merely provides summary proceedings for the collection. It was said on the second appeal of that case: "The liability of the stockholders for the taxes was not created by section 280 [311]. It does not originate in an assessment made thereunder. Long before the enactment [section 311, supra] it had been settled under the trust fund doctrine [citing cases] that if the assets of a corporation are distributed among the stockholders before all its debts are paid, each stockholder is liable severally to creditors, to the extent of the amount received by him". [
It was said on the first appeal of Phillips v. Commissioner of Internal Revenue, supra [
Those United States Supreme Court cases do not discuss the extent and nature of such liability so long as the property which is subject to the prior right of creditors or lienors is still in the possession of the transferee. That is to say, whether under those circumstances there is a personal liability. A discussion of that theory is found in Harrison v. Commissioner of Internal Revenue, supra.
In Adams v. Perryman Co.,
There are three theories on which a liability exists at common law under the circumstances here mentioned, such as is referred to by the United States Supreme Court in the cases of Phillips-Jones Corp. v. Parmley, supra, as follows:
(1) If such stockholder disposes of the property and receives value for it, a court of equity will fasten a lien or trust upon the proceeds or their value in money and render a personal judgment against him; and because of that equitable right, a court of law will render a judgment against him as for money had and received. Ex parte Morton,
(2) If the stockholder does not sell such property for value, but converts it to his own use, or otherwise disposes of it without receiving value, he is liable in a suit at law in case
for damages for the destruction of the lien. Callahan v. Auburn Production Credit Ass'n,
(3) Although the stockholder may not be held personally liable for a moneyed judgment while he still has possession of the corporate assets, unless he refuses to surrender them or otherwise converts them, he has a duty, enforceable in equity, to apply them to the payment of the corporate debt for taxes to the United States since to that extent he became a trusteein invitum. Boothton Coal Mining Co. v. Tennessee Coal, Iron and Railroad Co.,
A similar question arose with respect to the federal income tax in the case of Magruder v. Supplee,
It is pertinent to determine the effect of the facts here set up upon the income tax liability of the taxpayer. If it is not deductible as a tax, what is it? That inquiry is specifically answered by features of the federal income tax law. Our own income *686 tax law contains some of the same features in substance, but the federal law is that which is here material to determine the meaning of the federal act here in question (to wit, section 311[a][1], supra). Section 115(c), Title 26 U.S.C.A. relates to the effect on federal income taxation of a distribution of assets of a corporation on dissolution. (It is in substance the same as section 403, Title 51, Alabama Code.) Section 115(c) provides that such distribution of assets to stockholders of a completely liquidated corporation "shall be treated as in * * * full payment in exchange for the stock".
The United States Supreme Court in Arrowsmith v. Commissioner of Internal Revenue,
The question of whether a tax is imposed as such by the United States, is governed by federal law and the decisions of the United States Supreme Court. Those decisions without conflict, as we have stated, are clear and unequivocal that the amount of the tax is assessed to a stockholder receiving assets on dissolution of the corporation not because section 311(a)(1), supra, makes him liable for the debts of the corporation, but because he is liable for the amount thereof in equity or at law under common law principles, and that the statute, supra, does not lay a tax on such stockholder but only provides an additional remedy to collect an existing liability to pay a tax laid on another.
It results from the foregoing that in paying the deficiency, or his pro rata part of it, of Gimon Estates, Inc., this taxpayer was discharging a liability which was not a tax imposed on him by the United States but it was otherwise existing for which the United States provided a summary remedy in addition to such as may exist in equity or at law under applicable principles.
Appellant relies heavily upon the case of Commissioner of Internal Revenue v. Breyer, 3 Cir.,
The decree of the trial court should be affirmed.
The foregoing opinion was prepared by FOSTER, Supernumerary Justice of this Court, while serving on it at the request of the Chief Justice under authority of Title 13, section 32, Code, and was adopted by the Court as its opinion.
Affirmed.
LIVINGSTON, C. J., and LAWSON STAKELY and MERRILL, JJ., concur. *687
